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.
Recent magazine articles such as "Swap and Sell your Way to Income Splitting" (Mar. 3, 1987, the Canadian Taxpayer) and "Don't Get Trapped by the New Income Attribution Rules" (Jan. 1987, C.A. Magazine) suggest that income splitting can still be done despite the introduction of sections 74.1 to 74.5 of the Income Tax Act. The subject letter requests our opinion as to whether or not GAAR would apply to the following situation:
The principal residence has previously been registered in the lower income earning spouse's name. The higher income earning spouse has a significant investment portfolio. The lower income earning spouse sells 505 of the principal residence to' the higher income earning spouse and takes a proportionate share of the investment portfolio in exchange. The enquirer feels that the attribution rules would not apply to this situation provided that both spouses elect not to have subsection 73(1) of the Act apply. The case was not submitted to the GAAR Committee as it was felt that GAAR would of be applicable in this situation. As stated in our response to question 2 the Banff Seminar on Income Taxation of May 4, 1986, attribution will apply if the principal residence was originally purchased with the funds of the higher income earning spouse. In such a case the investment portfolio would be "substituted property" within the meaning of subsection 248(5) of the Act, and subsection 74.5(1) of the Act would have no application. If on the other hand, the principal residence was acquired with the funds of the lower income earning spouse, the exchange of assets would be a transfer for fair market consideration as contemplated by subsection 74.5 of the Act, provided that the value of the property transferred (50% of principal residence) was equal to the value of the consideration received (the proportionate share of the investment portfolio).
As this is the type of situation contemplated by subsection 74.5 of the Act, we do not feel that this could be construed as a misuse of the provisions of the Act.
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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