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 two parcels of farmland, with both names of two brothers on each title, can be partitioned so that only one name will remain on each parcel without any tax consequences.
Position: Yes.
Reasons: The requirements for subsection 248(21) treatment would be available if the subdivisions of the original parcel of land into two parcels occurred in the course of, or in contemplation of, a partition and provided each parcel has the same fair market value.
2008-029787
XXXXXXXXXX Charles Rafuse
613-247-9237
January 21, 2009
Dear XXXXXXXXXX :
Re: Partitioning Farmland
This is in reply to your fax of October 24, 2008, concerning whether the partitioning of two parcels of farmland would result in a disposition under the Income Tax Act (the "Act").
You have indicated that you and your brother were joint owners of a XXXXXXXXXX -acre of farmland which was later split into two XXXXXXXXXX -acre legal parcels with both names being kept on the title of both parcels. It is now your plan to have one name removed from each parcel so that you and your brother would each have sole title to an XXXXXXXXXX -acre parcel of farmland.
You have requested our opinion whether the removal of one name from each of the two titles would constitute a disposition giving rise to a capital gain.
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 are prepared to offer the following general comments.
Subsection 248(21) of the Act applies where a co-owner receives, upon the partition of "a property", title to a separate piece of property whose fair market value equals the fair market value of the co-owner's previous interest. In such a situation, paragraph 248(21)(a) of the Act deems the co-owner's new interest to be a continuation of the co-owner's undivided interest in the property immediately before the partition. In other words, the co-owner will have neither disposed of nor acquired any property and, as a result, there is no capital gain or loss upon the partition of the property. Since the term "a property" is used, this means a singular property or one property. However, paragraph 248(21)(c) provides an exception to the single property rule for purposes of subsection 248(21) and modifies the meaning of the term "a property" so that subdivisions of land established in the course of, or in contemplation of, a partition shall be regarded as one property.
Subsection 248(20) of the Act applies where the fair market value of the separate piece of property received by a co-owner upon partition is less or greater than the fair market value of the co-owner's previous interest. Where the value is less, the co-owner is deemed to have disposed of the part of the interest in the property attributable to the shortfall. An amount received by such a co-owner because of an unequal partition could result in a gain or loss from the disposition. Where the value is greater, the co-owner is deemed to have acquired an interest in the property attributable to such excess. Furthermore, where a partition occurs but the property is not divided proportionately with respect to fair market values, the exception provided by subsection 248(21) of the Act will not apply (and thus subsection 248(20) will apply) in those situations where the joint owners make up for the disproportionate interests by cash contributions or otherwise, such as a disproportionate allocation of debt.
In answer to your question, it is our opinion that the proposed removal of one name from each XXXXXXXXXX -acre legal parcel would meet the requirements for subsection 248(21) treatment described above (i.e., there is no acquisition or disposition and no capital gain or loss to be recognised), provided the original XXXXXXXXXX -acre parcel was subdivided into the two XXXXXXXXXX -acre parcels in the course of, or in contemplation of, a partition between you and your brother and provided each XXXXXXXXXX -acre parcel has the same fair market value.
We trust this information is helpful.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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