1 February 1994 External T.I. 9328825 F - Capital Gains on Real Estate Disposition

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.

PRINCIPAL ISSUES:

Tax consequences concerning transfer of real estate property to son.

POSITION TAKEN:

None

REASONS FOR POSITION TAKEN:

Completed transaction

FINANCE OPINION:

None

JURISPRUDENCE:

None

RCT PUBLICATIONS:

Capital gains tax guide, Form T2083, Interpretation Bulletin IT-84.

HAA NUMBER:

5102-1

XXXXXXXXXX

Dear XXXXXXXXXX

Subject:  Capital gains on real estate disposition

This is in reply to your letter of September 27, 1993, requesting an advance ruling on the acceptability of capital gains that you propose to include in income as a result of a transfer of real estate property to your son.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where the particular transactions are completed, as in your case, the enquiry should be addressed to the relevant District Office. The following comments are, therefore, of a general nature only, and are not binding on the Department. These comments should not be considered as confirming that your property is capital property generating capital gains rather than income gains.

Generally, when an individual has transferred property to his child, by way of a gift, the individual is deemed to have received proceeds of disposition equal to the fair market value of the property on the date the beneficial ownership is transferred from the individual to his child. If the capital property was owned on December 31, 1971 (Valuation Day), a valuation as of that date is required to determine the tax cost.

Capital gains will occur if the proceeds of disposition exceeds the tax cost (adjusted cost base). Generally, the tax cost of capital property owned on December 31, 1971, is established by the median rule. In accordance with this rule, the tax cost of the property is deemed to be the median of three amounts, that is, the amount which is not the greatest nor the least of the three. Where two of the amounts are the same then that amount is deemed to be the cost of the property. These three amounts are as follows:

a)     actual cost of the property,

b)     the fair market value of the property on Valuation Day, and

c)     the proceeds of disposition of the property

Where the property was held jointly by a husband and wife, the proceeds of disposition must be allocated between them on the basis of the interest each spouse held in the property. Consequently, 3/4 of the capital gains realized on the disposition is required to be included in computing income of each spouse as taxable capital gains for the year in which the disposition occurred.

If capital gains is realized, an individual may be able to fully or partially offset capital gains by the capital gains deduction.

Entitlement to the capital gains deduction depends on amounts allowed in prior years. Where non-qualifying real property was acquired after February 1992, no capital gains deduction will be permitted in respect of the disposition thereof. For non-qualifying real property owned prior to February 1992, a capital gains deduction will be available only to the extent of the capital gains accrued prior to March 1992.

Where an individual has transferred property to or for the benefit of his child who was under 18 years of age, any income or loss of the child for a taxation year from the property is deemed to be income or loss of the individual and not of the child. Attribution of income and losses will cease commencing with the beginning of the taxation year in which the child attains the age of 18 years.

The Capital Gains Tax Guide for 1993 contains detailed information on the matters discussed herein and Form T2083 will help you calculate capital gains. You can contact the Edmonton District Taxation Office to obtain these documents or any assistance with respect to the tax treatment of the transfer of real estate property to your son.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate