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:
In approximately 1950, land in East Germany was seized by the government of that country from an individual who subsequently became a resident of Canada. Following the reunification of East and West Germany, the new Government has decided to return certain parts of previously seized land to original owners and provide compensation for parts of land that will not be returned. What is the tax treatment of the land returned to the estate of the individual (he died in 1986) and the tax treatment of the compensation received?
Position TAKEN:
For purposes of the Act, the cost to the estate of land returned to it from the German Government would be the fair market value of the land on the date the estate acquired both the legal and beneficial ownership of the land. Any appreciation in value of the land attributable to the period prior to such date would not be taxable under the Act, since such amount would be considered a windfall.
The receipt, by the estate, of compensation for "parts" of the land not returned would also be considered a windfall and, therefore, not taxable under the Act.
Reasons FOR POSITION TAKEN:
Position taken in previous files and consistent with The Queen v. Cranswick, 82 DTC 6073.
5-960092
XXXXXXXXXX M. Azzi
Attention: XXXXXXXXXX
May 1, 1996
Dear Sir:
Re: Compensation and Restitution of Land by a Foreign Government
This is in reply to your letter of December 22, 1995, wherein you requested our views on the tax treatment of a proposed compensation payment and restitution of land by a foreign government.
Our understanding of the facts is as follows:
1. After the second world war (approximately in 1950), the Government of East Germany seized land in that country from an individual resident of that country.
2. The land was subdivided and partially developed by the Government of East Germany.
3. The individual subsequently became resident of Canada in 1952 and died in 1986 (we assume that he was a resident of Canada until the time of death).
4. You indicated that, as of the date of death, the property in question was not included in the individual's estate, as he did not own it, nor was there any thought that it would ever be returned to him.
5. In 1991, upon the reunification of East Germany and West Germany, the foreign government provided an opportunity for claims to be made for the restitution of seized land, with provisos that certain land could not be returned to the original owners due to the type of development that had occurred on it. Land that will not be returned will, however, be compensated for. The compensation format has yet to be decided.
6. Not all "parts" of subdivided land were subject to imposed compensation. Parts have been returned and the original owners have been re-recorded in the land title "book". Other parts have been denied based upon the provisos, and negotiations for compensation continue.
7. Some parts of the land seized from the above-noted individual were returned to his estate in November 1992 and in January 1994. Compensation for the remaining parts are still being negotiated by a lawyer in Germany acting on behalf the estate's beneficiaries.
In our view, for purposes of the Income Tax Act (the "Act"), the cost to the estate of land returned to it from the German Government would be the fair market value of the land on the date the estate acquired both the legal and beneficial ownership of the land. Any appreciation in value of the land attributable to the period prior to such date would not be taxable under the Act, since such amount would be considered a windfall.
It is also our view that the receipt, by the estate, of compensation for "parts" of the land not returned would also be considered a windfall and, therefore, not taxable under the Act.
The foregoing opinion is not a ruling and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, is not binding on the Department.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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