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:
Tax consequences where shares are transferred to a spouse or children on death.
Position:
May be transferred on tax-free basis provided certain conditions are met.
Reasons:
Where shares transferred to child, rollover only available if shares qualify as shares of the capital stock of a family farm corporation.
5-961786
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
June 26, 1996
Dear Sir:
Re: Intergenerational and Spousal Transfers of Farm Property on Death
We are writing in reply to your letter of April 26, 1996 addressed to the Winnipeg Taxation Centre that was referred to us for reply.
In the situation you describe, a taxpayer owns preferred shares of a corporation, while his son who is farming owns the common shares of the corporation. You inquire about the tax consequences if the taxpayer's spouse or other children (who are not farming) were to inherit his shares on his death.
The facts you provided do not give us the information necessary to determine the tax consequences of the transfer of the shares on the taxpayer's death. For instance, it is not clear from your letter whether the particular shares qualify as "shares of the capital stock of a family farm corporation". The following comments are, therefore, of a general nature only.
Where a taxpayer dies leaving property, including shares, which, according to his will, must be transferred to his spouse, subsection 70(6) of the Income Tax Act (the "Act") provides that the taxpayer is deemed to have disposed of the property immediately prior to his death and to have received proceeds of disposition equal to the adjusted cost base and his spouse is deemed to have acquired the property for an amount equal to those proceeds. Where the legal representative of the taxpayer elects under subsection 70(6.2) of the Act, subsection 70(5) of the Act applies and the taxpayer is then deemed to have disposed of the property immediately before his death and to have received proceeds of disposition equal to the fair market value of the property at that time and his spouse is deemed to have acquired the property for an amount equal to those proceeds.
Pursuant to subsection 70(9.2) of the Act, where shares of the capital stock of a family farm corporation are transferred to a child on a taxpayer's death, the shares are deemed to have been disposed of by the taxpayer immediately before death and acquired by the taxpayer's child at its adjusted cost base to the taxpayer at that time, provided certain conditions, which are set out in paragraph 28 of Interpretation Bulletin IT-349R2, a copy of which is enclosed, are satisfied. However, the taxpayer's legal representative may elect under subsection 70(9.2) of the Act that the proceeds of disposition of the shares and the cost to the taxpayer's child of these shares be any amount between the adjusted cost base of the shares to the taxpayer immediately before death and the fair market value of the shares at that time.
As indicated in paragraph 17 of Interpretation Bulletin IT-268R4 (a copy of which is enclosed), a "share of the capital stock of a family farm corporation" of a person at a particular time means a share of the capital stock of a corporation owned by the person at that time where, at that time, all or substantially all of the fair market value of the property owned by the corporation was attributable to property that has been used principally in the course of carrying on the business of farming in Canada, in which the person or a related family member of the person was actively engaged on a regular and continuous basis.
We trust that these comments and the enclosed Interpretation Bulletins will be of assistance.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
Encl.
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