Section 43.1

Administrative Policy

15 June 2022 STEP Roundtable Q. 9, 2022-0929391C6 - Section 43.1 - Life Estate

application of s. 43.1 where a remainder realty interest is transferred to personal trust and there is a subsequent life interest surrender

Parent transfers a remainder interest in a home (the “Residence”), having a fair market value (“FMV”) of $250,000, to a personal, inter vivos trust (the “Trust”) of which an adult child (the “Child”) is the sole beneficiary and retains a life estate in the property with an FMV of $50,000, so that the remainder interest has a FMV of $200,000. Parent later moves out of the Residence and disposes of the life estate to the Trust to enable the sale of the Residence to a third party for $400,000.

CRA noted that by virtue of having disposed of the remainder interest in the residence to the trust and retained the life estate, Parent was deemed by s. 43.1(1) to have disposed of the life estate for proceeds of disposition equal to $50,000, and to have been deemed to have acquired such interest at a deemed cost of $50,000. S. 69(1)(b)(i) or (ii) deemed the proceeds of disposition of the remainder interest to be $200,000 and, if the trust received the remainder interest by way of gift, it was deemed under s. 69(1)(c) to have acquired it at a cost of $200,000. Provided the “principal residence” conditions were satisfied, the capital gain realized by Parent on the deemed disposition of the life estate, and on the disposition of the remainder interest to the Trust, would be sheltered by the principal residence exemption.

CRA noted that since the life interest of Parent was terminated by moving out rather than as a result of Parent’s death, so that the s. 43.1(2)(a) rollover did not apply, s. 69(1)(b) applied to deem receipt by Parent of FMV proceeds, so that Parent would realize a further gain if the life interest had appreciated in its FMV (and if there was instead a loss, such loss would be denied under s. 40(2)(g)(iii).)

If Parent instead stayed in the residence until death, s. 43.1(2)(a) deemed Parent to have disposed of the life estate immediately before death for proceeds equaling the ACB of the life estate (being the deemed cost that had previously arisen under s. 43.1(1)(b)) and (since Parent and the trust were deemed not to deal with each other at arm’s length) s. 43.1(2)(b), on the termination of the life estate, would add an amount to the ACB of the residence equal to the ACB of the life estate in the property immediately before the death (or a lesser amount if the fair market value of the residence as a whole has decreased since the initial transfer of the remainder interest). The Trust could not claim the principal residence exemption.

23 April 2013 Internal T.I. 2012-0466081I7 F - Usufruct created under French legislation

gift of immovable subject to reservation of a usufruct gave rise to a disposition under s. 43.1

A Canadian-resident taxpayer who lived outside Canada made a transfer without consideration (the "Gift") to her adult children of a building and subjacent land situated in France (the "Building"), which had appreciated subsequent to its acquisition by the taxpayer. The Gift was made as a shared gift (donation-partage) in accordance with s. 1075 of the French Civil Code ("C.c.f."), with the taxpayer reserving, as permitted by s. 949 of the C.c.f., a usufruct in her favour during her lifetime (the "Arrangement"), so that she was entitled to all the income from the Building.

After noting that the creation of a usufruct governed by the C.c.f. did not give rise to a deemed trust under s. 248(3), CRA stated (TaxInterpretations translation):

… the Taxpayer is deemed to have disposed of the Immovable for consideration equal to its FMV and that her children were deemed to have acquired the property for the same amount, all in accordance with the provisions of paragraphs 69(1)(b) and (c). We understand that the proceeds of disposition will be equal to the eventual excess of the FMV of the Immovable at the time of the Gift over the FMV of the Arrangement and any other rights and obligations relating to or encumbering the Immovable at that time.

After also indicating that s. 43.1(1) applied, it stated:

... the Taxpayer is deemed to have disposed of her Arrangement respecting the Immovable for proceeds equal to its FMV at the time of its establishment, being XXXXXXXXXX, and to have reacquired it, immediately after that time, at a cost equal to such deemed proceeds of disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) disposition of all building under shared gift 277
Tax Topics - General Concepts - Foreign Law 2-step approach to characterizing a French civil law transaction 244

27 November 1996 External T.I. 9620635 - gift of remainder interest of ecologically sensitive LAND

Where a corporation gave a remainder interest in ecologically sensitive land to a heritage or conservation organization and retained a life interest pur autre vie (namely, the joint lives of the shareholders of the corporation and their children), s. 43.1 would not apply because Canadian municipalities or registered charities excluded from the application of s. 43.1.


After noting that s. 43.1 did not apply because the transfer of a remainder interest by parents to their children occurred before 20 December 1991, RC stated:

"The value of a life estate in real property at a particular time is the difference between the current value of the real property and the value of the remainder interest in the real property. The fair market value of the remainder interest in the real property is determined by what a typical purchaser would currently pay for a fee simple ownership in the property subject to a life estate of certain identifiable persons. This is the future value of the present worth of the real property calculated using the life expectancy of the life tenants and an appropriate discount rate."

Subsection 43.1(2)

Paragraph 43.1(2)(b)

Administrative Policy

6 December 2006 External T.I. 2006-0152101E5 F - Disposition d'un domaine résiduel

ACB addition to residual interest in farm principal residence disposed of to family farm corporation

A farmer disposes of his principal residence to a family farm corporation while retaining a life estate in it until he and his spouse die.

After noting that when the farmer disposed of his remainder interest, while retaining the life estate, s. 43.1(1) applied so that he was deemed to have disposed of his life estate in the property for proceeds of disposition equal to its fair market value at that time, and was deemed by s. 43.1(1) to have reacquired the life estate immediately after that time at a cost equaling such proceeds, CRA went on to refer to s. 43.1(2)(b), and stated:

Paragraph 43.1(2)(b) applies if there is a non-arm's length relationship between the person who holds a residual interest in the real property immediately before the individual's death and the holder of the life estate. In the situation as you described it, the taxpayer or his or her spouse holds a residual interest in the principal residence prior to death and the holder of the residual interest is a family farm corporation that is controlled by the taxpayer's son. Thus, the taxpayer and the corporation are "related persons" by virtue of subparagraph 251(2)(b)(iii) … ..

Consequently, the lesser of the amounts set out in subparagraphs 43.1(2)(b)(i) and (ii) will be added to the ACB of the residual interest held by the corporation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) principal residence exemption extends to s. 43.1(1) gain 125