15 November 1999 External T.I. 9927765 - ACB OF WAR REPARATIONS

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: What is the adjusted cost base of property received by an individual from the German government as result of war reparations.

Position: Depends on the agreements and actual circumstances.

Reasons: The adjusted cost base of property depends on the cost of the property as of the date of acquisition. A taxpayer is considered to have acquired property when the taxpayer has acquired both the legal and beneficial ownership of the property. N/A

XXXXXXXXXX 	J. Gibbons
		5-992776
Attention: XXXXXXXXXX 

November 15, 1999

Dear XXXXXXXXXX:

We are replying to your letter of September 30,1999, in which you requested our views concerning the "adjusted cost base" of property (the "property") received by an individual as a result of war reparations from the German government. The term "adjusted cost base" has the meaning assigned by section 54 of the Income Tax Act.

As requested, we have considered your situation and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Thus, our comments are of a general nature only.

You describe the following situation:

• In 1999, the taxpayer received title to the property, which is situated in the former East Berlin, Germany.
• The property was seized from the taxpayer's family during or immediately after the Second World War.
• The taxpayer and/or her relatives did not have or enjoy any benefits of ownership in the intervening time period between the seizure of the property and the subsequent reparation.

Our Comments

In the case of capital property, paragraph 54(b) of the Act provides that the "adjusted cost base" of the property at any time means the cost to the taxpayer of the property adjusted, as of that time, in accordance with section 53. In the particular circumstances, the capital cost of the property will be based on the fair market value of the property on the date the property was acquired from the German government. In our view, a taxpayer is considered to have acquired property for income tax purposes at the point in time when the taxpayer has acquired both the legal and beneficial ownership of the property. This is a question of fact that can only be determined after reviewing all of the relevant documents and circumstances. Any gains or income attributable to the period prior to the date of acquisition would not be taxable in Canada, since such amounts would be considered "windfalls" according to the criteria established by the courts. These criteria are described in paragraph 3 Interpretation Bulletin IT-334R2, "Miscellaneous Receipts."

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

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