13 October 1995 External T.I. 9516825 - TRANSFER OF INVESTMENT PROPERTY TO A SPOUSE

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:

The tax consequences that would result from the transfer of various investment properties from the taxpayer to the taxpayer and his spouse as joint tenants.

Position TAKEN:

Unless an election is made, subsection 73(1) would deem the taxpayer to have received proceeds equal to one-half of either the undepreciated capital cost or the adjusted cost base as the case may be. Attribution rules might also apply.

Reasons FOR POSITION TAKEN:

The taxpayer is transferring one-half ownership in the properties to his spouse. Paragraph 69(1)(b) would apply except for the exception provisions of subsection 73(1). The taxpayer may elect in his return not to have the exception apply.

L. Barrows
XXXXXXXXXX 951682

Attention: XXXXXXXXXX

October 13, 1995

Dear XXXXXXXXXX:

Re: Transfer of Investment Property to a Spouse

This is in reply to your letter of June 15, 1995, wherein you requested our opinion on the tax consequences that would result from the transfer of ownership of various investment properties from the taxpayer to the taxpayer and his spouse as joint tenants.

The situation outlined in your letter would appear to relate to a specific, proposed transaction and confirmation of resulting tax consequences will only be provided in response to a request for an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R2. We can, however, offer the following general comments.

Comments

Where property, including inventory, is transferred to a person with whom the transferor does not deal at arm's length, the transferor is deemed to have disposed of the property at fair market value, pursuant to paragraph 69(1)(b) of the Income Tax Act (the "Act"). However, subsection 73(1) of the Act provides an exception to this rule for an inter vivos transfer of capital property to a spouse, by deeming the property to be transferred for proceeds equal to its undepreciated capital cost or its adjusted cost base, as the case may be. The effect of this provision is to defer the recognition of any capital gain or recapture that might otherwise result from a disposition at fair market value. This subsection will apply unless the transferor elects in his tax return not to have the provision apply.

In the situation described in your letter, the taxpayer would be considered to have disposed of only one-half of the property. As a result, if subsection 73(1) of the Act applied and if no election were made, the transferor would be deemed to have received proceeds equal to one-half of either the adjusted cost base or the undepreciated capital cost of the property, as the case may be. While no recapture or capital gain would be realized by the transferor, the attribution rules of sections 74.1 and 74.2 might apply to attribute to the transferor any income or losses from the property and any capital gains or capital losses resulting from a subsequent sale. These provisions are discussed in Interpretation Bulletin IT-511R, a copy of which is enclosed.

We caution that the above comments should not be taken as confirmation that the real property owned by the taxpayer is capital property, as opposed to inventory.

We trust these comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosure