18 October 1995 Internal T.I. 9524676 - ATTRIBUTION AND THE CAPITAL GAINS DEDUCTION

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:

GAAR Committee minutes dated March 3, 1993 indicate that section 245 may be applicable to circumstances which are similar to those set out in a letter dated December 10, 1992 (file 922658).

Position TAKEN:

We have proceeded to indicate in the Department's electronic database files that the letter no longer reflects the Department's position on the issue.

Reasons FOR POSITION TAKEN:

The GAAR Committee minutes reflect the proper position.

		October 18, 1995

	Tax Avoidance & Legislative	HEADQUARTERS
	  Recommendations Division	M. Eisner
Mr. W. Adams	(613) 957-8953
	Director
		952467

Attribution and the Capital Gains Deduction

This is in reply to your memorandum of September 15, 1995 concerning the attribution rules and the general anti-avoidance rule.

In your memorandum, you have made reference to GAAR Committee minutes dated March 3, 1993 in which the Committee considered circumstances where a taxpayer transferred shares (identical properties) to his spouse in two tranches followed by the sale of all the shares to an arm's length purchaser. The taxpayer elected under subsection 73(1) of the Income Tax Act (the Act) in respect of one tranche but did not elect in respect of the second tranche. The taxpayer received a promissory note for the fair market value of each set of shares. The computation of the adjusted cost base of the shares in the hands of the spouse was computed under section 47 of the Act. Following the sale of the shares, the spouse claimed the capital gains deduction alleging that the attribution rules did not apply as a consequence of subsection 74.5(1) of the Act. On the basis that the transfers were not undertaken for bona fide purposes other than to obtain the tax benefit and that there was a misuse of subsection 47(1) of the Act and an abuse of the Act read as a whole, the Committee recommended that subsection 245(2) of the Act be applied.

In relation to that recommendation, you have made reference to an opinion dated December 10, 1992 (File 922658) that was issued by this Directorate. As this opinion conflicts with the above recommendation, we have placed a note on our electronic database files that it no longer reflects the Department's position on the issue.

Bryan W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch