21 February 1995 External T.I. 9430155 - ATTRIBUTION & CAPITAL GAINS ELECTION FOR RESIDENCE

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:

General - Attribution of income. Transfer of property to spouse

Position TAKEN:

Question of fact. General discussion of attribution, capital gains election given

Reasons FOR POSITION TAKEN:

IT-511R, previous correspondence, section 74.2

		943015
XXXXXXXXXX	D. Zion

February 21, 1995

Dear XXXXXXXXXX:

Re: Attribution Rules

We are writing in response to your letter of November 6, 1994, in which you requested our opinion regarding the application of the attribution rules to the situation described in your letter. We apologize for the delay in replying.

As we understand it, in January 1988 you purchased a vacant piece of property (real property) ownership of which was registered jointly to both you and your wife. However, you have advised us that the funds used for the purchase of this property were "substantially" your own. You are of the view, based on the comments in Interpretation Bulletin IT-511R, entitled "Interspousal and Certain Other Transfers and Loans of Property", that the capital gain arising from the disposition of the property should be attributed to the spouse who made the original payment for the property, irrespective of how the property ownership is registered.

In the type of situation which you have described where one spouse does not contribute any funds to the purchase of a property but ownership is jointly registered to both spouses, there has been a transfer of property from one spouse to the other at the time of purchase. Accordingly, the attribution rules found in subsections 74.1(1) and 74.2(1) of the Income Tax Act (the "Act") will generally apply.

Paragraph 3 of IT511R comments that, where an individual has transferred property to the individual's spouse, any taxable capital gains arising from the disposition of the property will be deemed to be taxable capital gains of the individual. To determine the amount of gain deemed to be that of the individual, it is first necessary to calculate the taxable capital gain of the individual's spouse upon disposition of the property. It is this amount which will be attributed to the transferor. The individual can offset the capital gain attributed to the extent permitted by the rules respecting the capital gains deduction.

In the February 22, 1994 budget, the federal government announced that the Capital Gains Exemption of $100 000 was eliminated. However, individuals have the opportunity, when filling their 1994 income tax returns, to make an election for property owned on February 22, 1994, to recognize pre-Budget Day accrued capital gains up to the remainder of their $100,000 exemption. With respect to the election on real estate, only the pre-March 1992 gains can be recognized which is based on the proration rules established in the February 1992 Budget.

We are enclosing a copy of the 1994 Capital Gains Guide and the 1994 Capital Gains Election Package for your information. Both guides include a section that discusses the tax implications of a transfer of property to a spouse which might be of particular interest to you. Should you have any further questions regarding this matter, we suggest that you contact your local Revenue Canada Tax Services office. Upon provision of the facts of the situation they will be in a position to assist you.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch