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.
Question 73
An individual is deemed to have disposed of capital property immediately before death. The individual's estate comes into existence at the time of death. Assume that a deduction under section 110.6 (the capital gains exemption) is claimed on an individual's terminal tax return in respect of the deemed disposition of shares of a Canadian corporation. The estate then transfers the shares to a new, wholly owned Holdco and receives a note for an amount equal to the estate's adjusted cost base of the shares.
Will subparagraph 84.1(2)(a.1)(ii) apply to reduce the adjusted cost base of those shares for the purposes of section 84.1 or will it be inapplicable on the basis that the estate did not exist at the time of disposition giving rise to the capital gain exemption claim, and therefore cannot be said to have "not been dealing at arm's length" with the individual at that time?
Answer
Subparagraph 84.1(2)(a.1)(ii) will apply to reduce the estate's adjusted cost base of the shares for the purposes of section 84.1. This result, which follows from the finding of the Tax Court of Canada in Estate of Karna May v MNR (42 DTC 1189) that a deceased and her estate did not deal at arm's length, is, in the Department's view, consistent with the tax policy of section 84.1.
CTF November 1992 National Tax Conference
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1992
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1992