17 November 2008 External T.I. 2008-0281841E5 - Ownership of property

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: Whether there is a change in ownership when individual transfers property to daughter - individual purchased property and title registered in individual's name to protect property from daughter's ex-spouse. Daughter has resided in property and paid substantially all expenses since the purchase.

Position: general answer

Reasons: While it is clear that the individual intended that his daughter would be the beneficial owner of the property, a final determination can only be made by reviewing all the documents and circumstances applicable to the situation.

									2008-028184
XXXXXXXXXX 								C.  Ritchie
(613) 952-1506
November 17, 2008

Dear XXXXXXXXXX :

We are writing in reply to your e-mail of June 14, 2008, and further to our telephone conversation of August 21, 2008.

Your e-mail describes a situation where you purchased a home for your daughter in 2001. Your daughter has lived in it since the purchase. She has maintained the home and paid all of the expenses since that time. You contributed the down payment for the purchase of this property and title was registered in your name to protect the property from your daughter's ex-spouse. The property's value has increased since the property was purchased. You now wish to transfer this home to your daughter without generating a capital gain on the transfer.

Your question concerns whether the transfer of the title to the property to your daughter would trigger a capital gain in your hands.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we have considered your situation and will provide the general comments set out below for your guidance.

Under the Income Tax Act (Act), a capital gain accrued on a property is triggered when there is a disposition of the property. Generally, a disposition does not occur for tax purposes if there is a transfer of title that is not accompanied by the transfer of beneficial ownership. In other words, generally under the Act a disposition only occurs if there is a transfer of beneficial ownership. Therefore, a taxpayer's mere transfer of title to a person who has beneficial ownership of the property is not a disposition for tax purposes that would trigger a capital gain in the taxpayer's hands. In the common law jurisdictions, two forms of property ownership are recognized - legal and beneficial. Normally "legal ownership" exists when title is transferred to, recorded in, registered in or otherwise carried in the name of a person. Legal owners are generally entitled to enforce their ownership rights against all other persons. In contrast, the term "beneficial ownership" is used to describe the type of ownership of a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership.

While legal ownership and beneficial ownership are usually combined in one person, there are instances where they are not. In this regard, the intent of the parties as expressed in documents, their actions and handling of the property is vital for determining ownership. The determination of whether a person beneficially owns a property is a question of fact that can only be determined after a review of all the documents and the circumstances applicable to a particular situation.

The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership in a property, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations.

Useful comments relating to the concepts of "beneficial ownership" and "legal ownership" can be found in Interpretation Bulletins IT-437R, Ownership of Property (Principal Residence), and IT-170R, Sale of Property - When Included in Income Computation. These publications are available on the Canada Revenue Agency's website at www.cra.gc.ca.

We trust that the foregoing comments will be of assistance to you.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch