31 August 1990 External T.I. 9016165 F - The Unclaimed Intangible Property Act, 1989

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.

Attention: 19(1)

August 31, 1990

Dear Sirs:

Re:  The Unclaimed lntangible Property Act, 1989

This is in reply to your letter of July 16, 1990 concerning the personal income tax implications for owners of intangible property transferred to the Public Trustee and, in some cases, sold under the above legislation.

The Unclaimed Intangible Property Act, 1989 will require organizations holding intangible property (e.g. corporate shares, mutual fund units, deposit accounts) to identify owners with whom they have had no communications for specified periods of time (usually five years).  The organizations will then have to send notices to these individuals.  If the individuals do not respond to the notice the organization will report the property as unclaimed to the Ontario Public Trustee who will then advertise publicly for these individuals.  If the individuals still do not respond, the organizations will transfer the property to the Public Trustee. The Public Trustee will sell most property shortly after it is transferred to him under the program.

Owners (individuals or their heirs) will be able to come forward into perpetuity to claim property transferred to the Public Trustee.  The Public Trustee will return the value of the property at the date it was transferred to him (or the net proceeds if the property has been sold) plus interest for a period of up to ten years, if the property was interest-bearing at the time of transfer.

You have suggested that there are three potentially important points in the unclaimed property program in determining the owner's income tax position.  These are (1) the physical transfer of property to the Public Trustee, (2) the sale of the property by the Public Trustee and (3) the subsequent return of the proceeds to the owner when he or she comes forward to assert a claim to the property.  You have made the following observations with regard to treatment of these transaction:    

(1)     Physical transfer of property to the Public Trustee.  That there should not be any income tax consequences for the owner at this point.

(2)     Sale of the property by the Public Trustee.  That, although there would be a disposition of the property at this point, the proceeds of disposition should not be recognized until the owner comes forward to claim his or her property.

(3)     Subsequent return of the proceeds to the owner.  That the proceeds of disposition be recognized at this point as "compensation for property taken under statutory authority" as provided in subparagraph 54(h)(iv) of the Income Tax Act  and as a result, the replacement property rules in section 44 of that Act would apply.

Our Comments

Where unclaimed intangible property has been physically transferred to the Public Trustee, it is the Department's view that, as there has been no change in beneficial ownership of the property, there should not be any income tax consequences for the owner.  As you note this is consistent with subparagraph 54(c)(v) of the Income Tax Act (Canada).

As you have pointed out, a fundamental component of the unclaimed intangible property program is that the actual owner of the property has lost track of the property.  A sale by the Public Trustee would be carried out without the knowledge of the actual owner and therefore without necessary information on the adjusted cost base of the property.  In our view, recognition of the proceeds of disposition, for purposes of the owner's income tax liability, when the owner comes forward would be consistent with the Department's position on the treatment of dispositions of property associated with an involuntary dissolution of a corporation as set out in paragraph 7 of IT 444.

We agree with your suggestion that the proceeds of disposition be afforded treatment as "compensation for property taken under statutory authority" as provided under subparagraph 54(h)(iv).  This would result in tax treatment comparable to that afforded to other involuntary dispositions and therefore, the replacement property rules of section 44 of that Act would apply. of the Act would apply.  We note that this view strengthens the position that the owner has a disposition when he comes forward and claims compensation: see subparagraph 54(c)(i).

We trust this will be of assistance to you.

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch