5 November 1998 External T.I. 9820365 - 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: Whether the transfer of a real property into joint tenancy causes a disposition of the property.

Position: The transfer results in a disposition.

Reasons: In a true joint tenancy arrangement, title to the property vests in the spouse or child immediately, as such a disposition has taken place.

XXXXXXXXXX 							5-982036
								Karen Power, CA
November 5, 1998

Dear XXXXXXXXXX:

Re: Transfers of Real Property into Joint Tenancy

We are writing in reply to your letter of July 15, 1998, wherein you requested our views on whether the transfer of a property into joint tenancy, is a disposition of the property.

You have described a situation, where a taxpayer currently holds a farm property in joint tenancy with his wife. The taxpayer wishes to have his two son's become joint tenants of the property. You have specifically enquired whether having the son's names added to the title as joint tenants would cause a deemed disposition and, thereby, create a capital gain.

Our Comments

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following general comments which may be of some assistance to you.

It is the Department's view that the transfer of property solely owned by a taxpayer into a true joint tenancy arrangement between the taxpayer and his spouse or child would result in a disposition as title to the property vests in the spouse or child immediately.

In a situation where a taxpayer transfers a property into joint tenancy with his spouse, subsection 73(1) of the Act would deem the proceeds of disposition to be equal to 50% of the adjusted cost base of the property. The spouse will be deemed to have acquired the property at that time for an amount equal to 50% of the adjusted cost base.

The taxpayer may elect in his income tax return not to have the provisions of subsection 73(1) apply. In such a situation, the taxpayer will be deemed to have transferred 50% of the property at its fair market value rather than to have it deemed transferred for proceeds equal to 50% of its adjusted cost base. This would provide the opportunity of triggering a capital gain to which the enhanced capital gains exemption available under subsection 110.6(2) of the Act may be claimed.

In a situation where a taxpayer transfers a property into joint tenancy with a child resident in Canada, and before the transfer, the property was used principally in the business of farming in which the taxpayer, the taxpayer's spouse or any of the taxpayer's children was actively engaged on a regular and continuous basis, subsection 73(3) of the Act would deem the proceeds of disposition to be 50% of any amount between the fair market value of the property and its adjusted cost base. The child will be deemed to have acquired the property for an amount equal to the parents proceeds of disposition.

In situations where a parent transfers property to a child for proceeds of nil and the provisions of subsection 73(3) do not apply, the parent will be deemed to have received proceeds of disposition equal to 50% of the fair market value of the property pursuant to paragraph 69(1)(b) of the Act. The adjusted cost base of the interest disposed would be equal to 50% of the adjusted cost base of the entire property pursuant to section 43 of the Act. 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 pursuant to paragraph 69(1)(c) of the Act.

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

In your situation, depending on whether the provisions of subsection 73(3) of the Act apply, both the taxpayer and his wife will be deemed to have received proceeds of disposition equal to 25% of any amount between the fair market value of the property and its adjusted cost base. Each child will be deemed to have acquired his 25% interest in the property for an amount equal to the parents proceeds of disposition.

We trust our comments will be of assistance to you.

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch