This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Can an individual deduct an amount as a capital gains deduction in computing taxable income:
if the individual sold all or part of the shares held by the individual in the capital stock of a particular corporation to a child over 18 years of age; or
if, upon the individual’s death, the individual’s shares were instead bequeathed to a child over the age of 18.
Position: Generally, yes.
Reasons: Legislative analysis.
XXXXXXXXXX 2010-035987 I. Landry, M. Fisc
May 28, 2010
Subject: Capital gains deduction
This is in response to your letter of December 9, 2009, in which you asked us if you can claim the capital gains deduction in computing your taxable income in the following two situations:
(1) you dispose of shares you hold in the capital stock of a particular corporation to your child over 18 years of age; or
(2) upon your death, your shares would instead be bequeathed to your child over the age of 18.
We understand from the presented facts that the proceeds of disposition of the shares disposed of to your child over 18 years of age would equal their fair market value. We also understand that, in both situations, the shares of the capital stock of the particular corporation would, at the time of their disposition, or deemed disposition immediately before your death, be "qualified small business corporation shares" and "capital property" as those terms are defined in subsection 110.6(1) and section 54 of the Income Tax Act (the "Act").
Unless otherwise indicated, all legislative references herein are to the provisions of the Act.
As stated in paragraph 22 of Information Circular 70-6R5, Advance Income Tax Rulings, it is the practice of the Canada Revenue Agency ("CRA") not to issue written opinions with respect to proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, the determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope you will find useful.
An individual who was resident in Canada throughout a particular taxation year and who disposed in that particular year of shares that were currently qualified small business corporation shares may deduct, in computing taxable income for the particular year, the amount that the individual is entitled to claim to the extent that that amount does not exceed the limits in subparagraphs 110.6(2.1)(a) to (d).
In both of the situations that you have presented to us, we are of the view that you would generally be able to deduct an amount as a capital gains deduction in computing your taxable income for the taxation year from the disposition of the particular corporation's shares as long as all the conditions and limitations in subsection 110.6(2.1) are satisfied. The fact that you dispose of the shares of the particular corporation to an individual with whom you do not deal at arm's length should generally not prevent you from deducting an amount under subsection 110.6(2.1).
Finally, we are of the view that in both of these situations, subparagraph 84.1(2)(a.1)(ii) could apply for the purposes of section 84.1 to reduce the adjusted cost base of the shares acquired by your child.
We hope that our comments are of assistance.
for the Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
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