3 February 1995 External T.I. 9430965 - CAPITAL GAINS ELECTION - SOLE OWNER 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether the capital gains election can be filed in respect of half of a property where the taxpayer is the sole owner of the property.

Position TAKEN:

Election must be in respect of entire property.

Reasons FOR POSITION TAKEN:

The election must be in respect of a taxpayer's entire interest in the property, not a portion thereof.

		5-943096
XXXXXXXXXX		C. Chouinard

Attention: XXXXXXXXXX

February 3, 1995

Dear Madam:

Re: Subsection 110.6(19) of Bill C-59

We are writing in response to your letter of December 1, 1994, wherein you requested our comments on the application of subsection 110.6(19) as proposed in Bill C-59 (the "Bill") where the capital gains election is filed in respect of a cottage.

In the situation you describe, the taxpayer and her spouse acquired a cottage as joint owners prior to 1972. In July 1990, the taxpayer's spouse died and the taxpayer became the sole owner of the cottage. The executor of the spouse's estate elected under subsection 70(6.2) of the Income Tax Act (the "Act") to have subsection 70(5) of the Act apply. Therefore, the taxpayer acquired her spouse's one-half interest in the cottage at its fair market value at the time of death. You inquire whether the taxpayer can file the capital gains election in respect only of the one-half interest she acquired prior to 1972 or whether the election must be filed in respect of the whole property.

Our Comments

In order to recognize the accrued gain in respect of a property owned by a taxpayer at the end of February 22, 1994, the taxpayer is required to elect to have the provisions of subsection 110.6(19) as proposed in the Bill apply to the property. This election can be made in respect of any property that constitutes capital property.

Interests in jointly held property are treated as divisible for tax purposes. The acquisition of a property by two joint tenants would be viewed as the acquisition by each of a half-interest in the property. However, on death, the joint tenancy ceases to exist and the surviving joint tenant, in this situation, the taxpayer, becomes the sole owner of the property. Since the property owned by the taxpayer on February 22, 1994 was the entire cottage and as the capital gains election cannot be filed in respect of only part of a taxpayer's interest in a property, the election must be in respect of the taxpayer's 100% interest in the cottage.

Please note also that the "eligible real property gain" on the deemed disposition of the cottage will have to be calculated in two steps, since one-half of the cottage was last acquired in January 1972, and the other half was last acquired in July 1990.

We trust that these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch