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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Amendment to Subsections 70(5) and 110.6(18)
This is in reply to your letter of February 8, 1993, addressed to the Saskatoon District Taxation Office which was faxed for our reply. You expressed concern that the new subsection 110.6(18) provision of the Income Tax Act (the "Act") did not include subsection 70(5) in the list of "rollover" provisions that gives the transferee the benefit of the property being deemed to have been acquired at the time it was last acquired by the transferor. The advantage to the transferee being that a greater portion of any subsequent capital gain on depreciable property would qualify for the capital gains deduction.
We have reviewed your examples and agree with your calculations of the overall combined tax treatment of the transferee and the deceased transferor where death occurred after 1992 as compared to a transfer where death took place prior to 1993 but after February 1992. The deemed disposition and acquisition of the former situation is at fair market value ("FMV") and in the latter, where the FMV exceeds the undepreciated capital cost (UCC) of the transferor, is at the UCC plus 1/2 the difference between the UCC and the FMV of that property.
Paragraph (c) of the subsection 110.6(18) amendment applies to provisions of the Act where the transferee is deemed "to have acquired property for an amount that is not greater than the adjusted cost base to the person or partnership from whom it was acquired,". We understand from a conversation with an official at the Department of Finance that this "rollover" provision was intended only for transfers where the transferee became responsible for tax on the entire capital gain on the property. In all such transfers the transferee would be responsible for tax on the entire capital gain including any gain that would have accrued to the transferor had the transfer been made at FMV.
In transfers of depreciable property made under subsection 70(5) of the Act, prior to amendment, the transferee was not necessarily responsible for the entire capital gain because in most situations the deemed transfer value was greater than the adjusted cost base of the transferor. Hence, subsection 70(5) of the Act was not included in paragraph (c) of the subsection 110.6(18) amendment.
We trust that you will find our comments helpful.
Yours truly,
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. F. Metanchuk Business Enquiries Saskatoon District Office
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