18 June 1993 External T.I. 9302775 F - Attribution and Marriage Breakdowns

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Capital Gains Attribution

This is in reply to your letter of February 2, 1993 in which you requested our views on the application of the capital gains attribution rules in subsection 74.1(2) of the Income Tax Act (the Act). We apologize for the delay in responding.

In your letter, you have outlined circumstances that appear to relate to an actual situation. Confirmation of the tax consequences of proposed transactions in respect of such a situation will only be provided in response to a request for an advance income tax ruling. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2. On the other hand, if your situation relates to completed transactions, you may wish to submit all the relevant facts and documentation to the appropriate District Taxation Office for their comments. We are, however, providing you with the following general comments.

Our Comments:

It is our understanding that you are concerned with the type of situation where a taxpayer transfers property to his or her spouse at a time when they were living together harmoniously. Subsequently, when the taxpayer and his or her spouse are living separate and apart as a consequence of a marriage breakdown, the spouse transfers the property back to the taxpayer as part of a matrimonial property settlement. The taxpayer then sells the property to a third party and realizes a capital gain at a time when the two individuals are still legally married.

The concern in the above situation is whether the attribution rules of section 74.2 of the Act would apply with the result that the gain for income tax purposes would be considered to be that of the spouse.

In the above type of situation, the application of section 245 of the Act and subsection 74.5(11) of the Act would normally be considered. Section 245 is an anti-avoidance provision while subsection 74.5(11) provides that sections 74.1 to 74.4 of the Act do not apply when one of the main reasons for a transfer of property or a series thereof is to reduce the amount of income tax that would be payable on income or gains.

As a consequence of the above comments, it would be necessary to review all the relevant facts and documentation including a copy of the property settlement before it could be determined whether the gain on the property would be attributed to the spouse. Accordingly, it is not possible to provide you with meaningful comments at this time although we note that in reviewing such a situation, the fact that a property settlement in respect of a marriage breakdown is involved would be taken into account.

We regret that we could not have been of more assistance to you at this time.

Yours truly,

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