Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Revenue Canada Taxation Head Office
XXX
G. Thornley (613) 957-2101
JAN 30 1989
Dear Sirs:
RE: Remainderman and Life Interests
This is in reply to your letter of November 16, 1988 requesting our comments and guidance in structuring transactions involving remainderman interests in farm land with a retention of a life interest in a crop share or in cash rental income.
You ask particularly for guidance on whether discounting fair market value is appropriate in the circumstances of your hypothetical fact situations.
Our Comments
As you point out, the Department does not provide advance income tax rulings on the question of fair market value nor does it issue definitive statements on such matters. Valuations in specific circumstances should be referred to the staff of a District Taxation Office who may, if appropriate, forward the information to the Head Office Valuation section for review. The Rulings and Specialty Rulings Directorate are charged with the responsibility of issuing Advanced Income Tax Ruling with respect to proposed transactions in appropriate circumstances and technical interpretations of the various provisions of the Act where a Ruling is not appropriate.
As you have not asked for a technical interpretation of any specific provision of the Income Tax Act we are unable to provide a definitive response to your enquiries. We are prepared, however, to make some general comments.
With respect to a remainder man interest in land, we point out that the Department's administrative position in paragraph 9 of Interpretation Bulletin IT-268R3 concerning the special circumstances outlined therein would seem to imply that current market value discounted for the life expectancy of the transferor is an acceptable valuation, method in many circumstances.
Our general position with respect to a life interest held at death is that it is extinguished upon the death of the holder of the life interest and thus has no value at that time. It does however have some value until that time and in our view, the value of the life interest when added to the remainderman interest, will always equal the fair market value of the property at that particular time.
The adjusted cost base of the remainderman interest would be the holder's original purchase price or deemed purchase price, as the case may be, adjusted for any subsequent acquisitions of a life interest acquired for consideration prior to the death of the life interest holder.
We trust these comments will be helpful.
Yours truly,
or Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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