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:
Will a transfer to a spouse qualify under subsection 70(6) where the spouse will receive certain assets provided she agrees to assume certain liabilities of the estate?
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
The assumption of the liabilities is not contemplated in the will. It will be the result of agreement between the executors and the spouse. Therefore, it is not an "occurrence as a consequence of death" as set out in paragraph 248(8)(a).
950098
XXXXXXXXXX T. Murphy
Attention: XXXXXXXXXX
May 5, 1995
Dear Sirs/Mesdames:
Re: Subsection 70(6) and Paragraph 248(8)(a) of the Income Tax Act
This is in reply to your letter of January 13, 1995 concerning the provisions of the Income Tax Act (the "Act") outlined above in a situation where there are insufficient liquid assets in the estate to pay the debts of the estate and fund a specific bequest (the "liabilities"). The spouse and two children of the deceased are entitled to the residue of the estate after payment of the liabilities. They would receive shares of a private corporation if they agree to assume the liabilities of the estate and provide security therewith. The security may be the shares.
The situation described in your letter appears to be an actual situation and as such should be the subject of an advance income tax ruling if it relates to a proposed transaction or the subject of a referral to Winnipeg Tax Services if it involves a completed transaction. While we will not comment specifically of the facts outlined in your letter, we offer the following general comments.
The duties of an executor include paying debts of an estate and distributing the property of the estate in the manner set out in the will of the deceased. Where there are insufficient assets in the estate to pay the debts the estate is insolvent. Where there are sufficient assets to pay debts but insufficient assets to pay bequests the estate is solvent. In this latter case, the creditors must be paid in full and the determination of which assets will be sold to generate cash to pay the debts is generally left to the executor. If the residuary estate is specifically bequested or devised the executor would usually only sell that portion of the assets necessary to pay the debts, with the balance of the assets transferred to the residuary beneficiaries.
Paragraph 248(8)(a) of the Act provides: "a transfer, distribution or acquisition of property under or as a consequence of the terms of the will...of a taxpayer...shall be considered to be a transfer, distribution or acquisition of property as a consequence of the death of the taxpayer...." Paragraph 248(8)(a) of the Act is relevant for purposes of subsection 70(6) of the Act.
In our opinion, agreements between the executor and the residuary beneficiaries regarding arrangements not contemplated in the will would not be "under or as a consequence of the terms of the will." Therefore, such agreements would not be "as a consequence of death."
This opinion is provided in accordance with the comments in paragraph 21 of Information Circular 70-6R2.
We trust our comments will be of assistance to you.
Yours truly,
R.S. Biscaro
Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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