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, if an election is made in respect of property which also qualifies for the enhanced capital gains exemption, the property will continue to qualify for the $500,000 capital gains exemption.
Position TAKEN:
The $500,000 capital gains exemption will continue to be available if the property meets the relevant definition in subsection 110.6(1).
Reasons FOR POSITION TAKEN:
The $500,0000 capital gains exemption has not been eliminated and the capital gains election can be filed in respect of any property which constitutes capital property or eligible capital property.
5-942566
XXXXXXXXXX C.Chouinard
Attention: XXXXXXXXXX
December 9, 1994
Dear Sir:
Re: Capital Gains Election
We are writing in reply to your letter of September 30, 1994, wherein you requested our comments regarding the proposed capital gains election.
More specifically, you ask whether, if an election is made in respect of property which also qualifies for the enhanced capital gains exemption, the property will continue to be eligible for the $500,000 capital gains exemption.
In the February 22, 1994 budget, the federal government announced that the $100,000 capital gains exemption would no longer be available for capital property or eligible capital property sold after February 22, 1994. However, taxpayers who owned such property at the end of February 22, 1994 and who have not used all of their $100,000 capital gains exemption, may file a one-time election. The election allows taxpayers to report a capital gain to take advantage of the unused portion of their $100,000 capital gains exemption, even though they did not actually sell their property.
Although the $100,000 capital gains exemption was eliminated, the $500,000 capital gains exemption is still available for the disposition of qualified small business corporation shares and qualified farm property after February 22, 1994. Therefore, since the $500,000 capital gains exemption has not been eliminated, there is no need to file the election introduced in the last budget to take advantage of this exemption. However, an election can be filed in respect of qualified small business corporation shares and qualified farm property, if they constitute capital property or eligible capital property, to take advantage of any unused portion of the $100,000 capital gains exemption. If such an election is filed, the shares or the farm property, as the case may be, will continue to be eligible for the $500,000 capital gains exemption, to the extent of the unused portion of the exemption, if they meet the definitions of "qualified small business corporation share" and "qualified farm property" in subsection 110.6(1) of the Income Tax Act (the "Act").
With respect to your question regarding the revised adjusted cost base of property subject to an election, according to subparagraph 110.6(19)(a)(ii) of the draft legislation, where an election is filed, the property covered by the election is considered to have been reacquired by the elector at a cost equal to:
?where the property is an interest in a flow-through entity (such as a partnership interest), the cost to the elector of the property immediately before the disposition,
?where a disposition of the property would result in an income inclusion under section 7 or 35 of the Act, the elector's proceeds of disposition resulting from the election (unless the amount designated in the election is greater than the fair market value of the property at the end of February 22, 1994), and
?in any other case, the amount designated in the election (unless that amount is greater than the fair market value of the property at the end of February 22, 1994).
As regards eligible capital property, since the draft legislation does not deem eligible capital property to have been reacquired after the election, the election does not give rise to a deemed eligible capital expenditure.
We trust that these comments will be of assistance.
Yours truly,
R.A. Albert
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch
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