Section 70

Subsection 70(1) - Death of a taxpayer

Administrative Policy

21 August 1991 T.I. (Tax Window, No. 8, p. 10, ¶1404)

Interest on most compound debt instruments and term deposits accrues on a daily basis, with the result that on the holder's death, the accrued interest is required to be included in income under s. 70(1) rather than s. 70(2) or (3). However, where the instrument is a compound interest Canada savings bond, only interest accrued on the bond after the November 1 preceding the date of death is required to be included in the return filed under s. 70(1). The interest that has accrued prior to that date may be treated as a "right or thing".

Subsection 70(2) - Amounts receivable

Cases

Crown Trust Co. v. Minister of National Revenue, 65 DTC 5176, [1965] CTC 295, [1965] S.C.R. 723

S.64(2) of the pre-1972 Act did not apply to pension benefits which were paid to the estate of the deceased because the amounts could only be definitely ascertained upon the occurrence of the deceased's death, i.e., the amounts could never become payable in the lifetime of the deceased.

Administrative Policy

9 March 2015 External T.I. 2012-0469761E5 F - Rights or things

right to a trust distribution to be paid out of a dividend declared but not paid by a trust investment

A corporation wholly-owned by a discretionary non-testamentary trust (with an individual, his spouse and children as beneficiaries) declares a dividend, with the trustees then resolving that the trust will pay the dividend on receipt to the individual – who dies before the dividend is received by the trust. The dividend when received is paid to the estate. CRA stated (TaxInterpretations translation):

[A]n amount which a taxpayer has the right to receive at the moment of his or her death and whose value is determinable can constitute a right or thing under subsection 70(2) even if it is not payable ["exigible" – also translatable as "due"] at the moment of death because it is subject to a condition.

…In this case, it would be necessary to examine the trust deed and the trustees' resolution in order to determine if, at the moment of death, the individual had a right to receive an amount from the trust or if the existence of such a right was subject to an unsatisfied condition, namely the receipt by the trust of a dividend declared by the corporation.

21 December 1995 T.I. 952603 (C.T.O. "Rights and Things")

A dividend declared by a corporation within a month following the end of its fiscal period that is payable 14 months after the end of that fiscal period and that is equal in amount to three times the corporation's refundable dividend tax on hand at the end of the fiscal period in which the dividend is declared, will not qualify as "rights or things" for purposes of s. 70(2) where the individual shareholder dies within three months following the declaration of the dividend, because the determination of the refundable dividend tax on hand would involve income realization (or losses) during the period subsequent to the individual's death.

93 C.R. - Q. 38

An amount in a taxpayer's net income stabilization account fund no. 2 on hand at the time of her death will not be a right or a thing to which s. 70(2) or (3) may apply.

9 January 1992 T.I. (Tax Window, No. 15, p. 23, ¶1690)

Old age security benefits which the estate is entitled to apply for and which would have been payable to the deceased had an application been made prior to death will be considered to be rights or things.

91 C.R. - Q.27

An enforceable claim to unpaid management bonus would constitute a "right or thing". However, where the employer had a contractual obligation to pay a bonus annually, but the bonus for the period had not been declared as of the date of death, the amount would be considered to be periodic remuneration taxable under s. 70(1).

12 December 1989 Memorandum (May 1990 Access Letter, ¶1207)

An unexercised employee stock option held by an employee at the time of his death is not a "right or thing" because it is a right to purchase a share at a specified price, and not a right to an amount which would have been included in income on exercise or disposition of the right.

18 October 89 Meeting with Quebec Accountants, Q.14 (April 90 Access Letter, ¶1166)

The entitlement of a deceased employee to receive amounts under a leave of absence program constitutes a right or thing for purposes of s. 70(2).

81 C.R. - Q.16

S.70(2) generally will be applicable to a funded deferred compensation arrangement, whereas it will not generally be applicable to a lump sum payment out of an unregistered pension plan.

Articles

Thomas McCallum, "The Final Tax Return", CGA Magazine, January-February 2012, p.48

Non-technical discussion of opportunities for using separate return.

Innes, "If the Tax Treatment of Accrued Gains on Inventory at Death", Estates and Trust Journal, Vol. 12, 1992, p. 122.

Subsection 70(3) - Rights or things transferred to beneficiaries

Cases

Tory Estate v. M.N.R., 73 DTC 5354, [1973] CTC 434 (FCA), briefly aff'd 76 DTC 6312, [1976] CTC 415 (SCC)

A non-resident beneficiary of the Tory Estate ("Mrs. Denton"), who was entitled to a cash legacy of $90,000, purchased accounts receivable of $483,350 owing to the estate in consideration of (1) her releasing the estate from its liability to pay her $90,000 and (2) her paying $380,000 to the estate. It was held that "the words 'distributed to the beneficiaries' clearly restrict the value of the rights or things to be conveyed to each beneficiary to the amount of the bequest to which he is entitled", and that the meaning of the word "transferred" was similarly coloured. Mrs. Denton accordingly acquired $393,350 (or $483,350 - $90,000) of the accounts receivable as a purchaser for value, rather than as a beneficiary, and that amount accordingly was not excluded from the income of the estate by virtue of s. 70(3).

See Also

Teitelbaum v. Agence du revenu du Québec, 2017 QCCQ 8039

deceased’s RCA was a right or thing that, due to its tardy distribution, was received free of tax by an estate beneficiary

The plaintiff (“Teitelbaum”) received $1.4 million approximately two years after the death of her common-law partner (“Lewin”) as a result of being the sole beneficiary respecting a retirement compensation arrangement ("RCA") that had been established by Lewin’s employer. The two-year delay arose out of uncertainty as to whether Teitelbaum was an “eligible spouse” under the terms of the RCA; the conclusion was that she was not, and hence she received the amount in her capacity of the sole beneficiary under Lewin’s will.

Both Teitelbaum and the ARQ considered that the right of Teitelbaum under the RCA was a right or thing within the meaning of the Taxation Act (“TA”) equivalent of ITA s. 70(2). Teitelbaum considered that the amount was not distributed to her by the estate as contemplated by the TA equivalent of ITA s. 70(3), so that it was not taxable to her. The ARQ considered that the amount had not been received by her qua beneficiary of Lewin’s estate, but by virtue of a designation of her (in Lewin’s will) as a beneficiary of “all pension plans and any annuities purchased therefrom.” In its view, this was a designation referred to in sections 2379 and 2446 of the Civil Code of Québec ("C.C.Q") which stated, respectively, that:

[T]he designation or revocation of an annuitant, with respect to annuities provided by insurers or pursuant to a retirement plan, is governed by the rules for contracts of insurance that relate to beneficiaries and subrogated policyholders… .

The designation of beneficiaries or of subrogated policyholders is made in the policy or in another writing which may or may not be in the form of a will.

Fournier JCQ found (at paras 62, 66, 73-76, TaxInterpretations translation):

The RCA proceeds paid to Teitelbaum in 2010 were … a right or property that was part of the estate of Lewin at the time of his death and for which the executors of the estate should have taken possession from its commencement… .

The fact that the proceeds of the RCA were not actually paid into the estate in the first place does not change their legal nature and it cannot be inferred from this alone that the RCA henceforth constituted an annuity in respect of Teitelbaum.

Although the RCA is a retirement compensation arrangement within the meaning of the Income Tax Act and the Taxation Act, and possibly a retirement plan within the meaning of CCQ section 2379 …this is not sufficient for it to constitute an annuity contract of which Teitelbaum, by virtue of the designation, was the annuitant.

In accordance with the conditions established by the RCA, an annuity contract could have been purchased by Lewin during his lifetime or after his death for the benefit of an "Eligible Spouse".

However, the RCA is not in itself an annuity and therefore cannot give rise to a designation of beneficiaries as defined in section 2446 C.C.Q.

This is all the more so as Lewin or his "Eligible Spouse" had the option, at the time when the RCA proceeds became payable, to receive the available capital in the form of a lump sum in lieu of a life annuity… .

He concluded, before allowing Teitelbaum’s appeal (at paras 86, 88-89, 92):

It was therefore his right in his supplemental pension plan and the assets that comprised it that Lewin bequeathed to Teitelbaum under his will.

The proceeds of the RCA paid to Teitelbaum in 2010 thus constituted a legacy by particular title… .

In addition, in the absence of an amount payable under an insurance contract or annuity contract, the RCA proceeds paid to Teitelbaum in 2010 should have been included in Lewin’s final income tax return, if not in that of his estate.

Section 5(2) of the will expresses Lewin's desire to hold Teitelbaum, among other things, free from obligations, including taxes, which may be taxed on what has been bequeathed to her.

Administrative Policy

28 June 2017 External T.I. 2016-0653921E5 F - Beneficiary/person beneficially interested

a testamentary trust could be a beneficiary or beneficially interested in an estate

Would s. 70(3) apply where the will bequeathed rights and things (here, artistic works which had been included in the deceased artist’s inventory, the “Property”) to a testamentary trust whose beneficiaries were the spouse and descendants of the deceased? CRA stated::

[T]o the extent that the testamentary trust is, under applicable private law, a beneficiary of the estate at the time of the transfer or distribution of the Property by the estate, the testamentary trust could be considered a beneficiary or a person beneficially interested in the estate of the deceased individual for the purposes of subsection 70(3).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(25) testamentary trust could be considered to have a right as beneficiary in estate 116

Subsection 70(5) - Capital property of a deceased taxpayer

Cases

Nussey v. Canada, 2001 DTC 5240, 2001 FCA 99

The two sons of the taxpayer had transferred to him shares of a family corporation. The shareholders agreement provided that, on the death of a shareholder, his shares were deemed to have been redeemed by the company on the day preceding that of death.

The Court affirmed the finding of the Tax Court Judge that the deemed redemption provisions in the agreement did not effect a retroactive disposition of the shares the day before the taxpayer's death, nor was the Court persuaded that the sale of the shares to the taxpayer was void for a mistake because the sale did not have one of its intended tax consequences.

The Queen v. Mastronardi Estate, 77 DTC 5217, [1977] CTC 355 (FCA)

The taxpayer died suddenly and without warning of a heart attack. Shares that the deceased held in a company which held a term life insurance policy on his life were valued for purposes of s. 70(5) excluding the proceeds of the life insurance policy because it was held to be inappropriate to equate the time "immediately before" death with the instant of death.

See Also

Bueti v. The Queen, 2015 DTC 1213 [at 1374], 2015 TCC 265

residuary beneficiary did not acquire as a consequence of death

Mrs. Bueti, who was entitled to receive 1/3 of the residue of estate of her father (who died in August 1999), was found to have purchased, as joint tenant with her husband, a property (a house) included in her father estate for consideration of $50,000, which was less than its fair market value at the time of the July 2000 purchase.

In finding that s. 70(5)(b) did not apply to deem the house to have been acquired for its higher fair market value, Owen J found (after emphasizing, at para. 53, that the property was not devised in specie to any beneficiary) (i) that under Ontario law the property became vested in the executors and not the beneficiaries including the taxpayer (noting, at para. 56, that 909403 Ontario Ltd. v. DiMichele, 2014 ONCA 261 "confirmed that an entitlement to the residue of an estate under a will does not amount to a property interest in specific estate assets,") so that the property was acquired by the executors rather than the taxpayer (para. 59), and (ii) that the transfer to the taxpayer and her husband (who was not a beneficiary) as joint owners was inconsistent with the property being acquired qua beneficiary. S. 248(8)(a) was not discussed.

Accordingly, a gain on a subsequent disposition of the property (by gift in 2004, after it had become a rental property) was based on the property's lower actual cost.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership residuary beneficiary had no ownership of estate property 94
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(a) residuary beneficiary did not acquire as a consequence of death 125

Nauss v. The Queen, 2005 DTC 1370, 2005 TCC 488 (Informal Procedure)

In 1997 the taxpayer and his sister inherited from their grandmother a remainder interest in a house. with their 70-year old mother inheriting a life interest. In 2002 while the mother was still alive, the house was sold at a gain.

The 1997 valuation of the life interest of the taxpayer and his sister was determined as the present value of residential rental rates for the house over the life expectancy of the mother, and the 2002 valuation of the life interest was determined as its value in 1997 escalated in proportion to the increase in value of the whole property, and then proportionately reduced to reflect the decrease over the five years in the life expectancy of the mother from 10.02 years to 12.44 years. The remainder interest was valued in 1997 (for purposes of determining its adjusted cost base) and in 2002 (for purposes of determining the proceeds of disposition) by taking the residual values.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Land 148

Anderson Estate v. The Queen, 95 DTC 758 (TCC)

The sister-in-law of the deceased who had lived with him for more than 50 years and worked on his farm venture jointly with him for most of that period without any pay, was found to have an inchoate interest in the farm by virtue of a constructive trust. Accordingly, a transfer to her of a portion of the farm lands following an action brought by her against the estate was found not to entail a disposition of such property by the estate, nor was there a deemed disposition of property under s. 70(5).

Administrative Policy

10 June 2016 STEP Roundtable Q. 10, 2016-0645781C6 - US Revocable Living Trusts

transfer to remainder beneficiary of a U.S. revocable living trust on death does not occur as a consequence of death

CRA indicated that a (U.S.) revocable living trust is a true trust and not a bare trust given that it has remainder beneficiaries. CRA then was asked: Would a Canadian resident who is a remainder beneficiary be considered to have “acquired” the capital interest from the decedent at a cost equal to its fair market value immediately prior to the death of the grantor?

CRA indicated that the capital interest of the remainder beneficiary would have been acquired as a consequence of the terms of the trust and not as a consequence of the death of the settlor, so that s. 70(5)(b) would not apply to determine the adjusted cost base of the remainder beneficiary’s capital interest in the trust.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) U.S. revocable living trust is not a bare trust 155
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(a) remainder beneficary of inter vivos trust 161

12 December 2014 External T.I. 2013-0511391E5 F - Deemed disposition of capital interest in personal trust

push-down onto property distributed by inter vivos personal trust of s. 70(5)(b) cost of indefeasibly vested capital interest in the trust

The sole beneficiary of an inter vivos trust (the "Trust"), whose interest under the Trust had vested indefeasibly, died, as a result of which his capital interest passed as part of his estate to his beneficiary.

After noting that the deceased was deemed on death to have disposed of his capital interest for its fair market value, CRA stated that s. 107.4(4) "would apply to ensure that the FMV of the capital interest…was at least equal to the FMV of the Property of the Trust…." Furthermore, s. 70(5)(b) "applied so that the estate was deemed to have acquired the capital interest at its FMV immediately before the death."

Respecting the situation where the capital interest of the individual beneficiary had not yet irrevocably vested so that it was extinguished on his death, CRA stated that "we are not in a position to confirm that this interest would have no value immediately before the death" as this would turn on "an examination of all the facts and the exercise of judgment of a professional valuator."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) full step-up of properties distributed in satisfaction of an estate's capital interest in an inter vivos personal trust 328

24 May 2012 External T.I. 2011-0429991E5 - Price Adjustment Clause

Mr. A engages in an estate freeze transaction in Year 1 in which all his common shares are exchanged in a s. 86 reorganization for preferred shares whose terms contain a price adjustment clause. Following his death in Year 16 years later, CRA determines that the redemption value of these preferred shares at the time of their issuance was less than the fair market value of the common shares.

If the price adjustment clause was "valid," i.e., it complied with IT-169 including that the valuation method used in Year 1 was "fair and reasonable," then the redemption amount of the preferred shares would be automatically increased retroactively to Year 1, thereby increasing the fair market value proceeds of the deemed disposition of those shares in Year 16 on the death of Mr. A. If the price adjustment clause was not valid, it "could be argued" that there was a misrepresentation that opened up Year 1 to reassessment under s. 86(2).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date 153

28 November 2010 CTF Roundtable, 2013-0487431C6 - Value of Vote-Only Shares – 2010 CTF Conference

The questioner referenced the CRA statement at the 2009 British Columbia Tax Conference that, in the context of an estate freeze of a Canadian-controlled private corporation, where the freezor, as part of the estate freeze, keeps controlling non-participating preference shares in order to protect his economic interest in the corporation, CRA generally accepts that no premium should be attributed to such shares in determining their fair market value under s. 70(5), and asked whether this position also applies for the purposes of s. 104(4)(a), e.g., re the deemed disposition arising on the death of the spouse who is the beneficiary of a spousal trust. CRA stated:

...as was noted, CRA generally will ignore any premium that could be attributed to controlling non-participating preference shares, for purposes of subsection 70(5)...where the shares were held to protect the deceased's economic interest in the corporation....[W]e have not had the opportunity to give full consideration to whether the above position should apply for purposes of [s. 104(4)(a).]

4 October 2002 External T.I. 2002-0154725 -

On the death of Mrs. X, a life interest in a residence was received by her surviving husband (Mr. X) and the remainder interest by her daughter (Ms. A). S. 70(5) applied to the remainder interest gifted to Ms. A and s. 70(6) applied to the life interest gifted to Mr. X.

Mr. X was deemed to dispose of his life interest for its fair market value immediately before his death. Such a deemed disposition likely would result in a capital loss, but it would be deemed to be nil by virtue of s. 40(2)(g)(iii) respecting personal-use property.

Respecting valuation, CRA stated:

the FMV of a remainder interest in a real property at a particular time is equal to the FMV of that real property minus the FMV of the life interest therein. The calculation of the FMV of the life interest would usually be based on the following elements: FMV of the real property, a reasonable rate of interest, life expectancy of the beneficiary of the life interest at the date of transaction, and any other factors relevant to the specific case… .

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other 134

11 February 2002 External T.I. 2000-0004416 -

Where a Canadian resident individual inherits the shares of a publicly-traded company from a foreign relative, those shares will have a nil cost amount to him under s. 107(2)(b). Although under ss.70(5)(a) and (b) a deceased taxpayer is deemed to have disposed of capital property at fair market value and the person acquiring such property as a consequence of the taxpayer's death is deemed to have acquired them for the same amount, "in our view, a non-resident individual that is not subject to taxation in Canada, pursuant to subsection 2(3) of the Act, is not subject to the deemed disposition rules in paragraph 70(5)(a). Consequently, we would not expect the provisions of paragraph 70(5)(b) to apply to an estate that acquired property as a consequence of a non-resident person's death ... ."

May 1999 CALU Conference No. 9908430 Q. 8

Where a shareholder holds a special share (in addition to common shares of the corporation) with a nominal redemption value, and the shareholders agreement provides that upon the death of a shareholder, any excess of life insurance proceeds received by the corporation over and above the stipulated redemption price of the common shares shall be used to pay a dividend on that special share, then notwithstanding s. 70(5.3)) which deals with the fair market value of all the shares of a corporation rather than the allocation of that fair market value among classes, the right to receive that special dividend on a special share may cause that share to have a fair market value in excess of $1.

3 March 1995 T.I. 942991 (C.T.O. "Transfer on Death of Jointly-Owned Property")

The taxpayer's representative argued that because each joint tenant has an interest in the whole of the property, when the first joint tenant dies the surviving tenant does not acquire anymore property. In rejecting this interpretation, RC referred to the broad definition of property and concluded that s. 70(5) applies to deem the first to die of two joint tenants to have transferred his joint interest immediately before this death for proceeds equal its fair market value.

29 July 1992 External T.I. 5-921406 -

Where a taxpayer died in the Province of Quebec before 1989 in possession of property subject to a usufruct, s. 70(5)(c) would apply to the person who acquired the naked ownership of the property subject to the usufruct.

90 C.R. - Q54

The ratio in s. 70(5)(b) which applies for determining a beneficiary's deemed cost of each depreciable asset in a class also is the ratio which governs the determination of the proceeds for capital gains purposes under s. 70(5)(b).

88 C.R. - Q49

Neither s. 69 nor s. 70(5) applies to an accrual basis taxpayer when under the terms of his will a non-capital asset is transferred upon his death.

86 C.R. - Q56

A beneficiary to whom a mortgage receivable with a value less than its principal amount is distributed by the executors will realize a capital gain when it is paid off.

IC 89-3 "Policy Statement on Business Equity Valuations"

Discussion of the circumstances in which a buy-sell agreement will be considered determinative of value for purposes of s. 70(5).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares 0

Articles

Brian Nichols, "Double Taxation 101", Tax Topics, No. 1570, 11 April 2002, p. 1

Comparison of Pipeline Strategy With S.164(6) Strategy.

Cadesky, "Succession of the Family Business", Estates and Trusts Journal, 1994, Volume 13, p. 219.

Subsection 70(5.2) - Resource property and land inventory

Administrative Policy

20 June 2014 External T.I. 2014-0532221E5 - Disposition of Canadian resource property

deemed disposition of oil and gas royalty

As a result of a lease of subsurface rights to an oil company, Mr. A received monthly royalty payments (the "Royalty Payments"), which continued to his estate.

Provided that the royalty qualified as a Canadian resource property (under para. (d)), the deemed fair market value proceeds of the Royalty received by Mr. A immediately before death under s. 70(5.2)(a) represented proceeds of disposition of a CRP, which would have been deducted from his CCOGPE balance, with any resulting negative amount being included in his income pursuant to element F of the s. 66.4(5) definition.

Under s. 70(5.2)(b), the Estate would acquire the Royalty at its fair market value immediately before his death and this amount should be added to its CCOGPE balance, so that it would be entitled to 10% deductions under s. 66.4(2). The Royalty Payments will be included in the Estate's income under s. 9 or 12(1)(g).

Subsection 70(5.3) - Fair market value

Administrative Policy

20 September 1993 T.I. 932127 (C.T.O. "Life Annuities")

Although a life annuity is a life insurance policy which is issued or effected upon the life of a person, it is not a policy under which the life of the person is insured. Accordingly, RC question whether s. 70(5.3) would have application with respect to a life annuity.

84 C.R. - Q.54

S.70(5.3) is not applicable on a sale of shares to a non-arm's length person, and the proceeds of the life insurance policy will be a factor in the determination of the fair market value of the shares at that time.

Subsection 70(6) - Where transfer or distribution to spouse or spouse trust

Cases

Picard v. Lagotte Succession, 2017 QCCS 330 (Quebec Superior Court)

transfer of estate property to a beneficiary ordered to have “occurred, for tax purposes, at an amount equal to its adjusted cost base”

A surviving spouse (Picard – who was not one of the residuary beneficiaries of the estate of his wife) argued that it was improper for the executor of the estate to choose for the devise to him pursuant to her will of an apartment building with a low tax basis to occur on a rollover basis under s. 70(6), as this imposed the property’s accrued tax liability on him. In rejecting this submission, Bisson JCS noted that the will specifically accorded the executor with the discretion to make tax elections for the benefit of any one or more legatees or for that of the general estate – so that the executor clearly was within his rights in not making a s. 70(6.2) election.

He also rejected an argument that a standard 30-day survivor clause in the will meant that the indefeasible vesting requirement in s. 70(6) was not satisfied. He concluded (at para. 47):

The Court thus orders that the transfer of the 4790 Property occurred, for tax purposes, at an amount equal to its adjusted cost base [sic, cost amount], being $385,679.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6.2) executor was authorized under will to choose not to elect 546

Greenwood Estate v. The Queen, 94 DTC 6190 (FCA)

The deceased taxpayer agreed to sell shares to his three sons for $800,000, payable by a promissory note, with such sale to be completed within 30 days of the appointment of his executors. His will provided for the transfer of the assets of the residue of his estate to a spousal trust. Because at the time of the taxpayer's death the shares were subject to the agreement, the property that vested indefeasibly in the spousal trust was the promissory note and not the shares. Accordingly, the spousal rollover was not available. Robertson J.A. also quoted the statement of the trial judge that "indefeasible vesting requires that the person in whom the property is vested have the right to determine whether or not the property will be retained by him or her or disposed of to another." He went on to note that here, the agreement allowed for no discretion on the part of the vendor or the three sons.

Words and Phrases
indefeasible vesting

Van Son Estate v. The Queen, 90 DTC 6183 (FCTD)

The deceased taxpayer bequeath his 49% shareholding in a private company to his surviving wife. Joyal J. found that under a buy-sell agreement of the taxpayer with the majority shareholder, there was an obligation imposed on the majority shareholder to buy the estate's shares on the taxpayer's death, but there is no obligation on the estate to sell those shares. Because on the taxpayer's death the shares were not subject to an obligation to sell, the indefeasible vesting requirement was met.

Hillis v. The Queen, 83 DTC 5365, [1983] CTC 348 (FCA)

Per Clement, D.J.: Only the property of the intestate taxpayer's estate to which his widow was entitled pursuant to the Intestate Succession Act (Saskatchewan), not the estate assets which she became entitled to over 2 years later as a result at that later time of (a) disclaimers by other beneficiaries and (b) a relief order pursuant to the Dependants' Relief Act (Saskatchewan) (which order had retroactive effect to the time of the taxpayer's death only for the purposes of that statute), vested in her within the requisite time. It was reasonable for her to wait 41 months from the time of the intestate's death to commence these Federal Court proceedings to establish when vesting occurred, in light of a 29-month delay of the Minister in reassessing.

Per Heald, J.: Parliament's intention was that provincial law should govern the determination of when, for the purposes of S.70(6), the vesting occurred and the relief order accordingly vested the entire estate in the widow, this vesting being retroactive to the time of the taxpayer's death. The delay in obtaining this order was reasonable, given that it was due to the unsatisfactory handling of the estate by an accountant.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Resolving Ambiguity 56

Katz Estate v. The Queen, 76 DTC 6377, [1976] CTC 633 (FCTD)

Since the deceased is deemed to have disposed of depreciable assets immediately before the time of his death, his representatives are precluded from claiming depreciation for his terminal year in computing his income from property, regardless whether his taxation year is regarded as ending on December 31 or at the time of his death.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 249 - Subsection 249(1) 46

See Also

Husel Estate v. The Queen, 94 DTC 1765 (TCC)

A transfer of shares to the wife of the deceased in consideration for cash and set-off of debts owing to her by the estate occurred pursuant to a purchase transaction rather than as a consequence of the death of the deceased. Accordingly, the rollover in s. 70(6) was not available.

May Estate v. MNR, 89 DTC 534 (TCC)

Following litigation in the Saskatchewan Surrogate Court, an order was made vesting in the deceased's widow nine one-quarter parcels of land. These lands vested indefeasibly in her at the time the order was pronounced by the court, notwithstanding that before the order was issued, an agreement was concluded giving next-of-kin a right of first refusal with respect to three of the parcels.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date 21

The Queen v. Green Estate, 78 DTC 6324, [1978] CTC 501 (FCTD)

The testatrix provided in her will that the residue should be divided among her children then alive when there should no longer be any child of hers living and under the age of 21. It was held that the residuary gifts to her (minor) children were contingent, and that the residue accordingly could not be established to have "vested ... indefeasibly" in the children within 6 months of the testatrix's death within the meaning of s. 7(1)(c) of the Estate Tax Act.

Administrative Policy

13 June 2017 STEP Roundtable, Q.11

s. 86 reorg before shares are transferred by the executors to a spousal trust will taint the s. 70(6) rollover

The will of the deceased specifies that specified shares are to be transferred to a spousal trust. While the estate assets are being administered, the shares are converted from one class to another. Is the spousal rollover still available? If not, does the gain recognized on the tax return of the deceased have to be amended?

CRA in response stated that at the 2015 APFF Roundtable, Q.9, it had noted that the spousal rollover applies on a property-by-property basis, and the spousal trust must receive the same property that is deemed to have been disposed by the deceased taxpayer. Any property substituted for the property held by the deceased taxpayer would not qualify for the spousal rollover, because the language in s. 70(6) does not refer to substituted property.

Here, where there was a share reorganization, if it was determined that the shares were not transferred or distributed to the spousal trust, or not vested indefeasibly in the spousal trust before that reorganization, the shares would not be eligible for the spousal rollover, so that the deceased would be deemed to have disposed of those shares immediately before death, and to realize a capital gain or loss that would need to be reported on the terminal return.

9 October 2015 APFF Financial Strategies and Financial Instruments Roundtable Q. 9, 2015-0596611C6 F - Transfer 70(6)

non-application if replacement property distributed to spousal trust

An executor of an estate, whose residue was bequeathed to a spousal trust, paid the estate debts with liquid assets, transferred 75% of the remaining assets to the pousal trust and retained the balance pending a federal clearance certificate. If the executor chooses to sell or otherwise dispose of some of these retained assets (e.g., retracting preferred shares, or selling land), could the s. 70(6) rollover still apply to such properties on the basis that replacement property of equivalent value was distributed to the spousal trust? CRA responded (TaxInterpretations translation):

[S]ubsection 70(6) applies respecting each property of the deceased individually and could apply to a specific property in the residue of the estate. However, subsection 70(6) applies only if the property that the Spousal Trust receives is the same as the property which was deemed to be disposed of by the deceased immediately before death. …

If an executor, in performing the estate administration, is under an obligation to dispose of property or he exercises his power to dispose of the property… subsection 70(6) is not complied with since the property has not vested indefeasibly in the trust. We consider that a Spousal Trust must ultimately receive the property in order to find indefeasible vesting.

16 June 2014 STEP Roundtable, 2014-0523091C6 - STEP CRA Roundtable – June 2014

bequests to both spouse and common law spouse

Can s. 70(6) apply to a transfer by a taxpayer both to his or her spouse and a transfer to his or her common law spouse? CRA stated:

…It is possible that a taxpayer could have a spouse and a common-law partner at the same time, for purposes of the Act. For example, in document 2010-037390117 the CRA addressed a scenario where a taxpayer was legally separated but not divorced and had a common-law partner at their death. We were asked, in part, whether paragraph 70(6)(a) would apply to two properties of which one property was bequeathed to the deceased taxpayer's spouse (separated but not divorced) and another property was bequeathed to the deceased taxpayer's common-law partner. Provided all the conditions in subsection 70(6) are met in respect of the deceased taxpayer and the spouse or common-law partner, the subsection would apply to the property transferred to each of the spouse and common-law partner.

11 January 2012 STEP Roundtable, 2011-0402291C6 - Subsection 248(8)-Intestacy-Transfer of Property

non pro rata allocations to beneficiaries

Where a taxpayer dies intestate, then provided the property of the deceased is distributed to the beneficiaries in accordance with the shares specified in the applicable provincial law of intestacy, such property will be considered to have been distributed as a consequence of the deceased's death per s. 248(8) even if each type of property is not distributed on a pro rata basis among the beneficiaries. For example, it would be permissible for a surviving spouse to receive, in accordance with such provincial law, all of an RRSP of the deceased that was included in the estate, in order to access the s. 60(l) rollover. The answer implied that appreciated capital property also could be allocated exclusively to a surviving spouse.

12 March 2012 External T.I. 2010-0378451E5 - Vested Indefeasibly

Para. 8 of IT-449R (archived) re the effect of a buy-sell agreement on the "indefeasibly vested" requirement is still supportable.

8 October 2010 Roundtable, 2010-0371911C6 F - Biens dévolus au conjoint

In a situation where, in order to pay debts of the deceased, the executor of an estate sells a portion of the shares which were bequeathed to the testator's partner, the shares are not "transferred" to the spouse for the purposes of s. 70(6), and are therefore not eligible for a s. 70(6) rollover.

17 December 1996 Memorandum 962572 (C.T.O. "Remarriage Clause & Def'n of Spousal Trust")

Where a will provided that the widow was entitled to receive the income of the estate but that her entitlement was "to be terminated upon her death or remarriage", and it is proposed that a court order be obtained removing the remarriage clause, RC will accept that the property of the estate vested indefeasibly in the spouse's trust within the 36-month period only if the court order is made within 36 months of the date of death.

14 November 1996 T.I. 962734

Before referring to Peardon v. MNR, 86 DTC 1045, RC in its summary stated that "lending or investment of trust property to a non-spouse on 'commercial' terms does not taint the spousal trust but if the terms of the trust permit the lending of trust property to a person other than the spouse on terms more favourable than that [sic] which would otherwise be available to that person commercially, the trust would not be a spousal trust, even if the trustees did not make such a loan."

5 May 1995 T.I. 950098 (C.T.O. "Assumption of Liabilities")

A transfer of shares of a private corporation made to the surviving spouse after her agreement to assume liabilities of the estate and provide security therefor would not be considered a transfer "under or as a consequence" of the terms of the will of the taxpayer as contemplated in s. 248(8)(a), but, rather, as the result of the agreement between the executors and the surviving spouse.

17 August 1994 T.I. 941053 (C.T.O. "Trusts - 'As a Consequence of the Taxpayer's Death'")

A discretion accorded by the will to the executors to determine the particular assets to be distributed to the spouse or spousal trust of the deceased would not, by itself, cause the rollover in s. 70(6) not to be available.

30 November 1993 T.I. 932716 (C.T.O. "Vested Indefeasibly")

In determining whether a by-sell agreement in a shareholders' agreement would result in shares not be considered to vest indefeasibly in the spouse, it would be necessary to determine if any of the terms of the shareholders' agreement could be considered a condition subsequent or a determinable limitation set out in the grant, as discussed in Boger Estate, 93 DTC 5276 (FCA). [Further discussed in 25 January 1994 T.I. 933702 (C.T.O. "Vested Indefeasibly")]

22 November 1991 T.I. (Tax Window, No. 13, p. 7, ¶1632)

A designation under s. 104(13.1) or (13.2) will not affect the status of a spousal trust.

22 August 1991 T.I. (Tax Window, No. 8, p. 19, ¶1406)

The spouse is entitled to receive all of the income of the trust only if the sole discretion to receive all or part of the income is in the spouse's hands. However, the spouse may indicate in writing a desire not to receive all or part of it without disqualifying the trust.

15 April 1991 T.I. (Tax Window, No. 2, p. 23, ¶1202)

Where a bequest to a surviving spouse is made in addition to the surviving spouse's entitlement under the Family Law Act (Ontario), two valid spouse trusts may be created.

3 December 1990 Memorandum (Tax Window, Prelim. No. 2, p. 15, ¶1077)

An apartment building and the underlying land generally can be treated as two separate properties, with the result that s. 70(5) can be applied to the land, and s. 70(6) to the building.

14 November 1990 T.I. (Tax Window, Prelim. No. 2, p. 10, ¶1042)

Where a deceased taxpayer's surviving spouse receives property from the estate pursuant to his or her equalization right, the property will be considered to be transferred as a consequence of the death of the deceased. However, where the surviving spouse reaches a settlement with the executors and property is transferred to the surviving spouse in consideration for a release of his or her rights to make a claim under the Family Law Act for an equalization and net family property, the rollover is not available.

14 May 1990 T.I. (October 1990 Access Letter, ¶1466)

Where the surviving spouse has the right to put the shares of the deceased to the other shareholders, and the other shareholders have a call right, RC generally considers the shares to have become vested indefeasibly in the spouse if they are transferred to her before either option is exercised.

2 April 1990 T.I. (September 1990 Access Letter, ¶1420)

A clause in a will empowering the executors determine whether a particular receipt was on income or capital account serves only to facilitate the administration of the estate and does not give arbitrary powers to the executors. Accordingly, the trust is not tainted from being a spouse trust.

19 April 1990 T.I. (July 1990 Access Letter, ¶1324)

After reconsidering its technical interpretation of 7 December 1989, RC was of the view that a designation under s. 104(13.1) or (13.2) and the payment of the resulting taxes out of the trust income, will not affect the status of a trust described in s. 70(6)(b) or 104(4)(a).

7 December 1989 T.I. (May 1990 Access Letter, ¶1225)

Where a trust pays the tax liability out of trust income resulting from an s. 104(13.1) designation, the requirements of s. 70(6)(b)(i) will not be met. However, the payment of the tax out of taxable capital gains of the trust will not in and of itself preclude the trust from qualifying.

3 November 89 T.I. (April 90 Access Letter, ¶1173)

A spousal trust will be created where the will directs the establishment of a trust for a spouse that leaves total discretion to the executor to determine the total value of the properties to be transferred to the trust, and the specific properties to be transferred.

84 C.R. - Q.29

Re usufructs.

80 C.R. - Q.42

If at the time a widow acquires shares under her husband's will, she is bound under a buy-sell agreement to sell them, there is no indefeasible vesting.

IT-449R "Meaning of 'Vested Indefeasibly'"

IT-305R3 "Establishment of Testamentary Spouse Trust"

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt 32

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Treaty relief from residency requirement in 70(6) – but “will” requirement (p. 171)

Subsection 70(6) applies to a transfer to a taxpayers spouse only when the taxpayer and the spouse were resident in Canada immediately before the taxpayer's death. If the property is to be transferred or distributed to a spousal trust created under the taxpayers will, subsection 70(6) requires that the taxpayer be resident in Canada immediately before death, and the trust must be resident in Canada immediately after the property vests in the trust. Article XXIX B(5) of the Canada-US tax treaty provides some relief from this requirement for individuals who are residents of the United States immediately before death. It deems a US resident individual and her spouse to be residents of Canada for the purposes of subsection 70(6). In addition, a spousal trust with US-resident trustees that would otherwise qualify for rollover treatment under subsection 70(6) may apply for competent authority relief so that it is deemed to be resident in Canada for the purposes of subsection 70(6). Article XXIX B(5) still requires that the transfer of property to the spousal trust be made under a will. This can raise practical difficulties because US individuals often use an inter vivos trust to reduce or defer US estate tax. A transfer made under the terms of such a trust does not qualify for competent authority relief under article XXIX B(5) because the transfer is not made under a deceased person's will. [F.n. 161…2009-094591117]

Spousal trust funded with insurance proceeds (p. 175)

The CRA accepts that a trust funded with insurance pursuant to a beneficiary-designation or under the taxpayer's will may qualify as a testamentary trust, even if the terms of the trust are set out in another document, provided that the trust is not funded before the taxpayer's death with property. [F.n.174… 2002-0143685 … 2014-0529361E5] However, the CRA does not accept that such a trust qualifies as a spousal trust for the purposes of subsection 70(6) because the terms of the trust are not set out in the will. In our view, the CRA's position appears to be incorrect. A pre-existing declaration of trust that is funded and created pursuant to the terms of the taxpayer's will should be treated as having been created under the terms of the taxpayer's will because the trust did not exist before the transfer.

Transfer resulting from disclaimer or release (p. 176)

A transfer made to a spousal trust occurs as a consequence of death if the transfer of property is made (1) under the terms of a will; (2) under a will if the original beneficiary of the property disclaims her interest in the property, and the executors transfer the property to a spousal trust; or (3) under a will if the original beneficiary of the property releases or surrenders her interest in the property, and the executors transfer the property to the spousal trust.[F.n.178 The CRA is of the view that a disclaimer or release can be used only to add property to an otherwise valid trust. A disclaimer or release by beneficiaries of their interests in a trust cannot be used to cure a tainted spousal trust.] A transfer of property to the trust for consideration is treated as occurring as a consequence of death when the will requires the spouse or spousal trust to make the payment for the property.

Relevance of documents external to will in determining indefeasible vesting (pp. 182-3)

According to… Boger Estate, whether property is vested indefeasibly is generally determined on the basis of the terms of the will. Thus, property does not vest indefeasibly in a spouse or spousal trust if under the terms of the will, the property must be transferred to another beneficiary on the occurrence of.an event (for example, the remarriage of the spouse). However, it should be possible to vest property indefeasibly in a spouse or spousal trust if the spouse or spousal trust may be required to transfer the property under an external agreement. Notwithstanding this aspect of the decision in Boger Estate, the CRA has indicated that it also looks at the effect of other agreements in. respect of the beneficial interest in determining whether the interest has vested indefeasibly. …[F.n.201 …9337025…] The CRA's position is often relevant in the context of private company shares transferred on the death of a shareholder when the terms of the shareholders' agreement address the treatment of the shares on death. …

Although this position is difficult to reconcile with Boger Estate, there is some support for the CRA's position in the jurisprudence.

In Parkes Estate v. MNR, [F.n. 203 86 DTC 1214 (TCC)] … [t]he testator had entered a buy-sell agreement with his brother under which the surviving shareholder of the two of them was required to purchase and the executor of the deceased's estate was required to sell the shares…In the court's view, the buy-sell agreement operated to prevent the shares from vesting indefeasibly in the spouse.

Transfer of partial interest to spousal trust (p. 184)

It seems to be possible for an interest in property to vest in a spousal trust, even if the entire property is not transferred to the trust. For example, the CRA has confirmed that a spousal rollover is available with respect to an undivided interest in real property that is transferred to the spousal trust if the children receive the remaining undivided interest. [F.n.209 – 2003-0006025]

Situations where a spousal trust can be tainted/correction through disclaimer (pp. 187-8)

The CRA…has expressed the view that a spousal trust does not qualify when the terms of the trust:

  • permit the renting of real estate owned by the trust to a person other than the spouse for less than fair market value rent, or the lending of money to a person other than the spouse on less than fair market value terms, even if the lease or loan is never entered into; [F.n. 219 …S6-F2-C1…1.10. See also … 2003-0019235]
  • provide that trust property can be distributed to the children of the deceased in any circumstances before the spouse's death (for example, if the spouse remarries); [F.n.220 … 2002-0154435] or
  • permit or require the trust to pay life insurance premiums. [F.n.221 … 2006-0185551C6]

The CRA's view regarding life insurance on the life of the spouse is questionable. Its position is based on the fact that the benefits of the insurance policy are enjoyed by a person other than the spouse. However, the benefits are not enjoyed before the spouse's death, and therefore the requirements of subsection 70(6) appear to be met. …

If an otherwise qualifying spousal trust provides for beneficial interests for other beneficiaries that taint the trust, it should be possible for beneficiaries other than the spouse of the deceased to disclaim their interests and cleanse the tainted spousal trust. Although … Gilbert Estate … [F.n.222 83 DTC 645 (TRB).] … held that a son's disclaimer of his interest in a trust did not cleanse an otherwise qualifying spousal trust, Maria Elena Hoffstein noted that Gilbert Estate was decided before subsection 248(8) was enacted and may have been legislatively overturned by the enactment. [F.n.223 Maria Elena Hoffstein, "Restructuring the Will and the Testamentary Trust: Methods, Underlying Legal Principles, and Tax Considerations," Personal Tax Planning feature (2012) Canadian Tax Journal 719-39.]

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Treaties - Articles of Treaties - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(35) 157
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379

Paragraph 70(6)(b)

Administrative Policy

20 April 2016 External T.I. 2015-0601141E5 - Delay in final distribution from spousal trust

spousal trust can have a final distribution date 36 months after testator’s death

Would a testamentary trust qualify as a spousal trust if the deceased taxpayer’s will deferred the final distribution date for the spousal trust up to three years after the death of the surviving spouse? After referencing the requirements of s. 70(6)(b), CRA responded:

Generally, a provision in the deceased taxpayer’s will that provides for the deferral of the final distribution date for up to three years after the death of the surviving spouse, thus continuing the existence of the trust, should not in and of itself preclude the trust from qualifying as a spousal trust pursuant to subsection 70(6).

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Classification of Trusts for Income Tax Purposes", Chapter 2 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016.

Right of spouse to enforce payment of income (pp. 90-1)

It seems that the spouse or common-law partner must each year be able to enforce payment of all income of the trust arising during the year until his death. However, in a technical interpretation in 2003 [fn 121:…2003-0008285…] the CRA responded ambiguously in respect of a testamentary spousal trust that allocated the spouse all of the income that arose before her death, provided that she could force a distribution of income only every three years, with a "catch up" in the year of death….

[T]he cautious position is not to include in the terms of the trust a right of the trustees to postpone the distribution of the annual income to the spouse or common-law partner.

The requirement that the spouse or common-law partner be entitled to all of the income of the trust during his lifetime applies to income for trust law purposes…Therefore, capital gains realized by the trust are treated as capital….

Capital v. income of spousal trust (p. 92)

Although generally the terms of the trust determine whether the spousal or common-law partner trust requirements are satisfied, these terms cannot determine whether a payment is income of the trust, to which the spouse or common-law partner must be entitled, or capital….

Payment of income to “or for benefit” of spouse (p. 93)

Does drafting that provides for the payment of income by the trustees to or "for the benefit" of the spouse or common-law partner taint a spousal or common-law partner trust?...[I]t appears to be the view of the CRA that these provisions don not disqualify a trust... [fn 129: See Interpretation Bulletin IT-305R4 (Archived), "Testamentary Spouse Trusts," October 30, 1996, at paragraph 15.]

Disclaimer of tainting interest (p. 98)

Since a disclaimer results in the disclaiming beneficiary being treated as never having had the property or interest in question, it should be possible for a disclaimer to untaint an otherwise tainted spousal or common-law partner trust. For example, if a trust that otherwise qualifies as a spousal, trust includes a power to encroach on capital during the life of the spouse in favour of a person other than the spouse, it should be possible for that person to disclaim her potential entitlement and thereby untaint the trust.

Unfortunately, a contrary position was taken in Gilbert Estate v. MNR. [fn 149: 83 DTC 645 (TRB).]…Bonner J [stated] that the disclaiming beneficiary could not, "by disclaimer or otherwise, . . . change the terms of the trust." This conclusion was incorrect since the disclaimer operates to void the interest of the disclaiming person ab initio: it changes the terms of the trust from the beginning.

Subparagraph 70(6)(b)(ii)

Administrative Policy

20 April 2017 External T.I. 2016-0672501E5 F - Usufruct and Use of capital of a trust by a spouse

right of the bare owner of property, subject to a usufruct in favour of a surviving spouse, to dispose of his bare ownership does not preclude a spousal trust

The will of the Quebec deceased bequeathed the usufruct of rental property (the "Immovable") to his spouse and the bare ownership to his adult child. The usufruct could be extinguished only upon the death of the spouse. Does the ability of the bare owner to dispose of his or her right to a third party cause the deemed trust arising under s. 248(3) (the “Trust”) to not meet the s. 70(6)(b)(ii) conditions? CRA stated:

[W]here the will provides that no person other than the deceased's spouse or common-law partner may, before death, receive any part of the income or capital of the Trust or otherwise obtain the use thereof… the fact that the will does not prevent the bare owner from disposing of his or her right should not, in and of itself, cause the condition in subparagraph 70(6)(b)(ii) to not be met.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(3) - Paragraph 248(3)(a) deemed spousal trust created through will 112

Paragraph 70(6)(d.1)

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Extinguishing of unused LP losses (pp. 170-171)

Other than for the purposes of paragraph of 98(5)(g), this paragraph [70(6)(d.1)] provides that the deceased is, deemed not to have disposed of the partnership interest as a consequence of the taxpayer's death; the spouse, common-law partner, or trust is deemed to have acquired the partnership interest at a cost equal to the cost to the deceased; and the adjustments made in computing the adjusted cost base of the deceased in the partnership interest described in subsections 53(1) and (2) apply in computing the adjusted cost base of the interest to the spouse, common-law 1 partner, or trust. As a result of these provisions, the at-risk amount to the spouse, common-law partner, or trust is generally equal to the at-risk amount of the deceased. However, the deceased limited partnership losses are not transferred with the partnership interest, and therefore any unused limited-partnership losses of the deceased are not available to a transferee of the limited partnership interest.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Articles of Treaties - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(35) 157
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379

Subsection 70(6.2) - Election

Cases

Picard v. Lagotte Succession, 2017 QCCS 330 (Quebec Superior Court)

executor was authorized under will to choose not to elect

Under the will of his deceased wife, the plaintiff (Picard) was a legatee by particular title of her principal residence as well as of an apartment building on which there was a substantial accrued gain – but was not one of the residuary beneficiaries under her will. Picard accepted these legacies approximately two months after her death. The transfer of the apartment building (which the will required to occur subject to an hypothec thereon) was treated by the liquidator of the succession (who did not elect under s. 70(6.2) for non-rollover treatment) as occurring on a rollover basis under ITA s. 70(6) and the Quebec equivalent.

Picard referenced s. 739 of the Quebec Civil Code, which stated that “A legatee by particular title who accepts the legacy… is not liable for the debts of the deceased on the property of the legacy unless the other property of the succession is insufficient to pay the debts,” and Laforest v. Boudreault, 2015 QCCA 162, which found in light of s. 739 that the income tax respecting a legacy by particular title of an RRSP to a child should be borne by the succession of the deceased and not by the child. He submitted that, consistently with s. 739, he was not responsible for the obligations of the deceased respecting the apartment building (including respecting the accrued gain), so that the building should not have been transferred to him on a rollover basis.

Bisson JCS noted that, in addition to the legacies under clause 3 thereof, clause 10 of the will provided that the liquidator “can make any election permitted by tax or other legislation, where he considers this to be advantageous for one or more of my legatees or for my general succession” (TaxInterpretations translation, para. 27) and rejected this submission, stating (at para. 28):

Thus, the combination of clauses 3 and 10 of the Will is completely clear and does not call for any other interpretation: the legacies by particular title of the real estate were made to Mr. Picard, on condition that he assume the hypothec, and it is the liquidator who has the power to choose such tax option as he considers advantageous for one or more of the legatees or for the succession in general. Thus, the tax impact is to be such as the liquidator determines.

In light of this finding, Picard’s further argument, that s. 70(6) should not be interpreted so as to not trench on his rights under the will and s. 739, was unfounded; and Bisson JCS also noted (at para. 41) that under s. 70(6.2), the choice as to whether the rollover applied was that of the liquidator rather than the legatee.

Picard also argued that the indefeasible vesting requirement in s. 70(6) was not satisfied given that clause 5 of the Will provided (para. 44):

Any right of any legatee or heir provided by this will is conditional on him or her surviving me by at least thirty (30) days.

In rejecting this submission, Bisson JCS stated (at para. 45):

At the expiration of the 30-day period…the right of Mr. Picard to the 4790 Property as legacy by particular title irrevocably vested in him. Subsection 70(6) thus applied without restriction.

He concluded (at para. 47):

The Court thus orders that the transfer of the 4790 Property occurred, for tax purposes, at an amount equal to its adjusted cost base [sic, cost amount], being $385,679.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) transfer of estate property to a beneficiary ordered to have “occurred, for tax purposes, at an amount equal to its adjusted cost base” 176

Administrative Policy

12 June 2012 STEP CRA Roundtable, 2012-0442921C6 - STEP CRA Roundtable - June 2012 Q.9

A s. 70(6) election cannot be made in respect of a fractional interest in a property For these purposes each share of a corporation, and all of the taxpayer's interest in a partnership, constitutes a single property of the taxpayer. As each share is a separate property, a s. 70(6.2) election can be made for any number of the deceased taxpayer's shares; whereas it cannot be made with respect to a portion of the deceased taxpayer's partnership interest.

91 C.R. - Q.43

A legal representative can elect with respect to a portion of the shares, and a formal written statement, although preferred, is not required. An amendment to or a revocation of an election may be granted where it can be demonstrated that the original election causes unintended tax consequences, and there is no retroactive tax planning involved.

6 March 1991 External T.I. 5-910239 -

RC allows election to be made in respect of a fraction of the total number of identical shares owned by the deceased taxpayer.

90 C.R. - Q55

The representative may not elect with respect to part of a property.

Subsection 70(9) - When subsection (9.01) applies

Cases

The Queen v. Boger Estate, 93 DTC 5276 (FCA)

The will of the deceased taxpayer devised a life interest in some lands (the "home quarter") to his wife and the residue of his estate (including some additional lands) to his four children. 2 1/2 years after his death his wife obtained a court order pursuant to the Family Relief Act (Alberta) granting her the fee simple in the home quarter. At the same time, the additional lands were sold with the consent of the adult children and the proceeds distributed to them.

In finding that there had been an immediate indefeasible vesting of the additional lands in the children Joyal J. noted that no condition or limitation was imposed in the will itself on the devise of the residue and found that such devise was sufficient to constitute a "transfer" of property in the additional lands to the children notwithstanding that the lands never were conveyed to them.

In rejecting a submission of the Crown that the personal representative of the estate must take a positive action to "transfer or distribute" legal title or physical possession before the beneficiaries under the will could be said to have obtained any property rights, Heald J.A. found that beneficial entitlement in the real estate arose on death and not at some later date pursuant to s. 3 of the Devolution of Real Property Act (Alberta). In addition, there was an immediate vesting of the real property because there was no condition precedent to be fulfilled before the devise took effect and there were no prior interests in existence; and the vested interest of the children was not defeasible since it was not subject to any condition subsequent contained in the will.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - trust - (g) meaning of "vested" and "indefeasible" 107

See Also

Bouchard Estate v. MNR, 93 DTC 1511 (TCC)

In finding that 50% of the lands of the deceased were used in the business of farming immediately before his death, rather than 10% as reassessed by the Minister, Gauron TCJ. stated (p. 1515) that he did not believe:

"That in interpreting subsection 70(9) one must consider only the part of the land that was effectively used for tillage of the soil or other agricultural operations immediately before the taxpayer's death."

Lewis v. MNR, 89 DTC 291 (TCC)

In his will a testator gave his wife the rents and profits from a farm until one of his grandsons reached the age of 20, at which time the farm was to be conveyed to them. It was held that at the time of the testator's death the land vested in interest (albeit not in possession) in his grandchildren.

Administrative Policy

81 C.R. - Q.37

Where property is held under the terms of a will on trust for a child until he attains a specified age, or to his estate if he does not attain that age, then the property is regarded for purposes of subsections 70(9), (9.2) and (9.4) as having vested indefeasibly in the child even though it, in fact, is vested in a trust for the child.

Subsection 70(9.4)

See Also

McCreath Trust v. The Queen, 82 DTC 6294 (FCA)

property passing as a consequence of death

It was held that the beneficial interest of 4 children in the corpus of a trust which had been established by her 7 years before her death, arose on her death (that being the relevant test in S.3(1)(j) of the Estate Tax Act), where the trust agreement provided that the trustee shall "on the death of the Settlor if she shall die leaving issue her surviving ... hold the trust fund in trust for the issue of the Settlor who shall be living at her death ...".

Subsection 70(9.01) - Transfer of farming and fishing property to child

Administrative Policy

25 February 2015 External T.I. 2014-0534681E5 F - Interaction of subsections 69(11) and 70(9.01)

s. 69(11) is ousted by s. 70(9.01)

Does s. 69(11) apply where s. 70(9.01) applies? CRA responded (TaxInterpretations translation):

Whether or not the taxpayer's legal representative elects, subparagraphs 70(9.01)(a)(i) and 70(9.01)(b)(i) both provide that section 69 does not apply to the taxpayer or to the child in respect of the property. Consequently,…section 69, which includes subsection 69(11), will not apply in a situation where subsection 70(9.01) has application.

Subsection 70(10) - Definitions

Share of the Capital Stock of a Family Farm Corporation

Administrative Policy

11 February 2014 External T.I. 2014-0517611E5 F - Actions d'une société agricole familiale

"principally" refers to the majority of the years

In year 1 Father purchased Opco, in year 5 he transferred his shares equally to Child 1 who actively explanted the farming business of Opco along with Father (including after his death in Year 15), and to Child 2 who did not so participate. In Year 18 Child 2 transferred his or her shares to a holding company (Holdco), and in Year 20, wishes to transfer the shares of Holdco to a son. At all relevant times the assets of Opco were used in its farming business.

In finding that the shares of Holdco were shares of the capital stock of a family farm corporation, CRA stated (TaxInterpretations translation):

Father used the property of Opco in carrying on a farming business in Canada in which he was engaged on a regular and continuous basis for 15 years out of a period of 21 years. We are of the view that the property of Opco was used principally in the course of carrying on a farming business by an eligible person.

24 December 2012 External T.I. 2012-0457881E5 - Share of a capital stock of a family farm

After stating that the comments in 2000-0011595 were still valid, CRA stated:

CRA would take into account the use of a particular property by a person who was an eligible person in respect of that family farm corporation during a period of time where such property was owned or rented by such eligible person(s) before it was acquired by the family farm corporation.

1 March 2000 External T.I. 1999-001137 -

A corporate partner of a partnership carrying on a farming business would be considered to be carrying on that business.

26 March 1991 T.I. (Tax Window, No. 1, p. 17, ¶1171)

Although whether a member of the board of directors of a corporation is to be considered to be actively engaged in the business is a question of fact, attending three to four meetings a year and being involved only in the major decisions concerning the management of the family farm does not satisfy the requirement.