19 December 1991 External T.I. 9126915 F - Attribution of Gain to Transferor where Nil Consideration

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.

912691

Dear :19(1)

Re: Application of Subsection 74.2(1) of the Income Tax Act (the Act}

We are writing in reply to your letter of August 19, 1991, wherein you requested that we confirm your views on the interpretation of subsection 74.2(1) of the Act as it relates to the following situation.

As we understand it, prior to 24(1) a taxpayer and a spouse purchased  real property each contributing  one-half of the purchase price.  In 24(1), the spouse's one-half interest in the property was gifted to the taxpayer.  Both individuals wish to crystallize their respective unrealized capital gains in this property and utilize their respective capital gains deductions.  To do so, the taxpayer intends to transfer legal and beneficial ownership in the entire property to the spouse and will elect to have subsection 73(1) of the Act not apply.

Since this scenario appears to relate to actual taxpayers and a proposed transaction, which would normally be submitted as an advance income tax ruling request, we are unable to respond to the specifics in this situation.  We are, however, prepared to offer the following general comments in this regard.

Our Comments

Where a taxpayer transfers real property to a spouse and elects to have subsection 73(1) of the Act not apply, the taxpayer will be deemed to have received proceeds of disposition equal to the fair market value of the property pursuant to paragraph 69(1)(b) of the Act.  The taxpayer's one-half share of the accrued capital gain would thus be included in income in the year of disposition and may be eligible for the capital gains deduction under 110.6(3) of the Act, depending upon the taxpayer's circumstances.

Similarly, the spouse would by virtue of paragraph 69(1)(c) of the Act, be deemed to have acquired the real property (including the one-half interest previously gifted to the taxpayer prior to 1985) at that fair market value.  One-half of the accrued capital gain would, by virtue of subsection 74(2) of the Act (applicable to transfers of property occurring prior to 1985) be attributed to the spouse.  The spouse's share of the capital gain would be included in income in the year of disposition and may be eligible for the capital gains deduction under 110.6(3) of the Act, depending upon the spouse's circumstances.

In view of the above, it is our opinion that subsection 74.2(1) of the Act would not have application until the spouse disposes of the real property. 

Should your situation relate to actual taxpayers and a factual situation, you may wish to resubmit this request for a binding advance income tax ruling.  In the event that your situation relates to actual taxpayers and a completed transaction, you may wish to submit all relevant facts and documentation to the appropriate District Taxation Office for their comments.

We would caution that the above comments reflect an expression of opinion only and as such are not binding upon the Department.

Yours truly,

P. D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental  Affairs Branch