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.
Principal Issues: Follow-up question to question 20(c) of the 2011 CICA Roundtable concerning valuation of a life estate on death of the holder.
Position: General comments provided - valuation issues should be directed to the appropriate TSO.
Reasons: Question of fact
Kimberly Duval
2011-040996
August 8, 2011
Follow-up question to the CICA Roundtable 2011 (question 20(c)) -
The CRA document 2002-0154725 indicated CRA's view that the life interest is deemed disposed of immediately prior to the death of the life tenant, with no provision for a transfer of its cost to the remainder interest holder.
At the death of the life tenant, one would assume that the FMV of the life interest would be nil - would CRA provide reasons why the value would be anything other than nil?
CRA response
The determination of the FMV of the life interest at the time of death of the life tenant is a question of fact. As a matter of practice, the Income Tax Rulings Directorate does not review nor provide advice with respect to the determination of FMV of a particular property at any particular point in time. Specific questions concerning the valuation of a particular life estate for tax purposes should be directed to the valuation section of the appropriate Tax Services Offices.
As previously noted in our original response to the roundtable, under subsection 70(5) of the Income Tax Act (the "Act"), a life tenant is deemed, immediately before death, to have disposed of his or her life interest in a property for proceeds equal to the FMV of the interest at that time. For the reasons set out by the Federal Court of Appeal in The Queen v Mastronardi (77 DTC 5217), the imminence of death is not taken into account in determining the deemed proceeds of disposition of a life interest. Thus, the fact that a life interest ceases to exist upon the death of the holder is irrelevant for purposes of the application of subsection 70(5) of the Act.
That said, however, one would reasonably expect the value of a life interest to decline over time but based on the above comments, we would not generally expect the facts to support a life estate valuation of nil at a time that is immediately before the death of the life tenant.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2011
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2011
Email this Content