11 May 1994 External T.I. 9405825 - CAPITAL GAINS EXEMPTION

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.

Principal Issues:

Whether the capital gains exemption applies to real

property sold before March 1992.

Position TAKEN:

Yes

Reasons FOR POSITION TAKEN:

The capital gains exemption on the dispositions of non-
qualifying real property as defined in 110.6(1) of the
Act has been eliminated after February 1992. Capital
gains accrued before that date are eligible pursuant to
the formula in 110.6(1) of the definition of "eligible

real property gain" within the limits of 110.6(3).

Gains accrued after that date will be taxed when the

property is sold.

5-940582
XXXXXXXXXX M. Shea-DesRosiers

Attention: XXXXXXXXXX

May 11, 1994

Re: Capital gains exemption

Dear Sirs:

This is in reply to your letter of March 1, 1994 concerning the above-mentioned subject. All references to statute are to the Income Tax Act S.C. 1970-71-72, c. 63, as amended, consolidated to June 10, 1993 (the "Act").

Your enquiry appears to relate to specific taxpayers and to completed transactions. As indicated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, 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 of an advance ruling request submitted in the manner set out in that Circular. When the particular transactions are completed, the enquiry should be addressed to the relevant District Taxation Office. The following comments are therefore of a general nature only.

The 1992 budget eliminated the $100,000 lifetime capital gains exemption on the disposition after February 1992 of real property (or an option or interest in respect thereof) if the real property meets the definition of "non-qualifying real property" as found in subsection 110.6(1) of the Act.

We assume that in your example you refer to such a non-qualifying real property. Where a taxpayer holds such property prior to March 1992, capital gains accrued before that date are eligible for the lifetime capital gains exemption pursuant to the formula in the definition of "eligible real property gain" at subsection 110.6(1) of the Act, within the limits indicated in subsection 110.6(3) of the Act. Gains accrued after that date will be taxed when the property is actually sold.

The fact that the parties to a sale of such property are related would not in itself disqualify them for the applicable capital gains exemption.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate