20 February 1996 External T.I. 9521075 - TRANSFER OF PROPERTY TO JOINT TENANCY

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:

Is a transfer of property from single ownership to joint tenancy a disposition?

Position:

Yes.

Reasons:

Definition of disposition in section 54. See also, files 5-8385, 922322, 922235 &9429915.

XXXXXXXXXX 952107

Attention: XXXXXXXXXX

February 20, 1996

Dear Sirs:

Re: Whether a Transaction Results in a Deemed Disposition

This is in reply to your letter of August 8, 1995, concerning whether a particular transaction would result in a deemed disposition of property. In your letter you explain that a woman owning capital property, units of a mutual fund, wishes to change her "account" from an account with her estate as beneficiary to an account with a right of joint survivorship, with her son as the joint survivor. The purpose of the change is to ensure that the mutual fund units will pass directly to her son upon her death and thus avoid being subject to probate fees in her estate. We apologize for the delay in responding to your letter.

As the above relates to specifically contemplated transactions it should be the subject of an advance income tax ruling request as outlined in Information Circular 70-6R2. We offer the following general comments that may be of assistance to you.

It is the Department's view that the transfer of property solely owned by a parent into a joint tenancy between the parent and a child would result in a disposition pursuant to section 54 of the Income Tax Act (the "Act") of 50% of his or her interest in the property. Pursuant to paragraph 69(1)(b) of the Act, the deemed proceeds of disposition would be equal to 50% of the fair market value of the property. The adjusted cost base of the interest disposed of would be equal to 50% of the adjusted cost base of the whole property pursuant to section 43 of the Act.

The 50% interest in the property retained by the parent would be subject to the provisions of subsection 70(5) of the Act upon the death of the parent (assuming the property has not otherwise been disposed of before that time).

Paragraph 69(1)(c) of the Act provides that property acquired by way of gift is deemed to have been acquired at its fair market value. Thus, the child would acquire his or her 50% interest in the property at the amount equal to the deemed proceeds of disposition to the parent. It should also be noted that as a joint owner of the property, the child would be entitled to 50% of any income earned in respect of the property and 50% of any proceeds realized on the sale of the property and would include these items in computing his or her income for income tax purposes.

We trust our comments will be of assistance to you.

Yours truly,

T. Murphy
for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch