16 December 1993 Income Tax Severed Letter 9316105 - Remainder Interest in Land

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

XXXXXXXXXX                                 931610

Attention: XXXXXXXXXX

December 16, 1993

Re: Subsection 43.1(1) of the Income Tax Act (the "Act")

This is in response to your letter of May 26, 1993, wherein you requested whether, with the introduction of subsection 43.1(1) of the Act, there would be any change in the way the Department interprets subsection 73(3) of the Act. In particular you have referred to paragraph 9 of Interpretation Bulletin IT-268R3 entitled "Inter vivos transfer of farm property to a child".

We apologize for the delay in responding.

Our Comments

The provisions of subsection 73(3) provide, inter alia, rules for the determination of the proceeds of disposition and the cost of acquisition in respect of certain types of property. In the case of land, the provisions apply where at any time any land in Canada in respect of a business carried on in Canada by a taxpayer is transferred by the taxpayer to a child of the taxpayer who was resident in Canada immediately before the transfer, and the land was, before the transfer, used principally in the business of farming in which the taxpayer, the taxpayer's spouse or any of the taxpayer's children was actively engaged on a regular and continuous basis.

Paragraph 9 of IT-268R3 states in part that "In certain circumstances the Department will regard a remainder interest in land as "land" for the purposes of subsection 73(3)." The preamble of subsection 43.1(1) of the Act states:

"Notwithstanding any other provision of this Act, where at any time a taxpayer disposes of a remainder interest in real property (except as a result of a transaction to which subsection 73(3) would otherwise apply) to a person or partnership (other than a registered charity that is a charitable organization described in paragraph 149.1(1)(b)) and retains a life estate or an estate pur autre vie (in this section called the "life estate") in the property,..."

The Explanatory Notes issued by the Minister of Finance in June, 1992, also state at page 37 thereof:

"....The provisions of subsection 43.1(1) do not apply in cases where the remainder interest is disposed of to a registered charity that is not a charitable foundation. The provisions of this subsection also do not apply to the transfer of a remainder interest in a farm property to a child if the provisions of subsection 73(3) otherwise apply to that transfer."

In our view, a remainder interest in land would be "land" for the purposes of subsection 73(3) if the requirements in paragraph 9 of IT-268R3 are satisfied and, if all other conditions under that subsection are met, the provisions of subsection 73(3) of the Act would apply on its transfer and the provisions of subsection 43.1(1) of the Act would not.

We trust that these comments will be of assistance.

Yours truly,

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch