17 July 1995 External T.I. 9505095 - MEANING OF "BECAUSE OF A BEQUEST OR INHERITANCE"

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.

		950509
XXXXXXXXXX	Jim Wilson
(613) 957-8953

Attention: XXXXXXXXXX

July 17, 1995

Dear Sirs:

This is in reply to your letter dated February 15, 1995, in which you requested our comments concerning the application of paragraphs 88(1)(d) and (d.2) of the Income Tax Act (the "Act"). The facts, in brief, involve a situation where an individual dies and the shares that he owned in a Canadian corporation are deemed to be disposed of at fair market value pursuant to subsection 70(5) of the Act. The estate holds the shares until it receives probate and then distributes the shares to those beneficiaries that were set out in the individual's Last Will and Testament. The beneficiaries then transfer the shares to a holding company and the Canadian corporation is then wound-up into the holding company pursuant to subsection 88(1) of the Act. You have specifically asked whether the Department would consider the beneficiaries to have acquired the shares in the Canadian corporation "because of a bequest or inheritance".

The situation described in your letter would appear to involve an actual proposed transaction. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Customs, Excise and Taxation. However, we can offer the following general comments which we hope will be of assistance to you.

Under the circumstances described above, the acquisition of the shares of the Canadian corporation by the beneficiaries from the estate is an acquisition "because of a bequest or inheritance". Accordingly, pursuant to paragraph 88(1)(d.2) of the Act, the deemed acquisition of control of the Canadian corporation by the holding company will not precede the date upon which the Estate acquired the shares in the Canadian corporation from the deceased individual. This may permit the holding company, for purposes of paragraph 88(1)(d) of the Act, to designate an amount in respect of the particular non-depreciable capital property which may increase the cost of that particular property at the date of the winding-up.

We also confirm your understanding that it is the Department's "view that the estate or executors acquire the shares by operation of law and not by bequest or inheritance".

The foregoing comments represent our general views with respect to the subject matter of your letter. As indicated in paragraph 21 of the aforementioned Information Circular this is not an advance income tax ruling and is therefore not binding on Revenue Canada, Customs, Excise and Taxation.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch