Chapter 12

Non-Arm’s Length Transactions,

Income Attribution And
Deemed Dispositions
(At Emigration And Death)
 Non-Arm’s Length Transfers

 Inadequate
Considerations
 Asset ACB = $100,000
 Asset FMV = $200,000

© 2007, Clarence Byrd Inc. 2

 Transfer At $200,000
 Transferor
 Gain = $200,000 - $100,000 = $100,000
 Transferee
 New ACB = $200,000

© 2007, Clarence Byrd Inc. 3

 Transfer At $250,000
 Transferor
 Gain = $250,000 - $100,000 = $150,000
 Transferee
 New ACB = FMV = $200,000

© 2007, Clarence Byrd Inc. 4

 Transfer At $120,000
 Transferor
 Gain = $200,000 - $100,000 = $100,000
 Transferee
 New ACB = $120,000

© 2007, Clarence Byrd Inc. 5

 Gift
 Transferor
 Gain = $200,000 - $100,000 = $100,000
 Transferee
 New ACB = $200,000

© 2007, Clarence Byrd Inc. 6

 Non-Arm’s Length Transfers
Depreciable Asset
 Transferee’s Cost > Transferor’s Cost
 ForUCC/CCA: Transferor’s Cost + ½ Excess
Of POD Over Transferor’s Cost

 Transferee’s Cost < Transferor’s Cost

 Transferee’s Cost = Transferor’s Cost

© 2007, Clarence Byrd Inc. 7

Inter Vivos Transfer To Spouse
Or Common-Law Partner
 ITA 73(1)
 Transfer At Tax Values
 UCC
 ACB

 No ITA 69
 Always Attribution

 Elect Out
 ITA69 Applies
 No Attribution If At FMV Or
Loan
© 2007, Clarence Byrd Inc. 8
 Farm Or Fishing Property
To A Child
 ITA 73(3) and (4)
 Property Must Be Used In A
Farming Or Fishing Business
Operated By Taxpayer, Spouse,
Or Children
 UnderAge 19 And Dependent
On Taxpayer

© 2007, Clarence Byrd Inc. 9

 Attribution - Spouse
 While Held
 Dividends, Interest, Rents And
Other Property Income To
Transferor
 At Disposition
 Capital
Gain To Transferor
 Based On Old ACB

© 2007, Clarence Byrd Inc. 10

 Attribution – Related Minor
 Under 18 At Year End
 No General Rollover
Provision
 Property Income
While Held
 No Capital Gain
Attribution

© 2007, Clarence Byrd Inc. 11

 Doesn’t Apply If:
 Business Income
 Transfers at fair market
value (Spouse must elect
out of ITA 73(1))
 Funds loaned at prescribed
rate or higher
 Subject to tax on split
income

© 2007, Clarence Byrd Inc. 12

 Tax Planning
 Pension Income Splitting
 RESPs
 Spousal RRSPs
 Assets with capital gains potential
 Detailed records
 Gifts
 New Businesses
 Salaries to family members
 Loans

© 2007, Clarence Byrd Inc. 13

 Taxable Canadian Property
 Importance
 ITA 2(3)
 Gains On
Dispositions Taxed
In Hands
Of Non-Residents

© 2007, Clarence Byrd Inc. 14

Taxable Canadian Property
 Real Estate
 Business Property
 Partnership
(>50% TCP)
 Private Company
Shares
 Public Company
Shares (>25%)

© 2007, Clarence Byrd Inc. 15

 Entering Canada
 Deemed Disposition
Immediately Prior To
Arrival
 Deemed Acquisition
On Date Of Arrival

© 2007, Clarence Byrd Inc. 16

 Departure From Canada
 Deemed Disposition
 General Rule
 Exceptions
Real Property
Business Property
Excluded Personal Property
 RPPs
 RRSPs
 DPSPs
 Stock Options

© 2007, Clarence Byrd Inc. 17

 Departure From Canada
 ITA 128.1(4)(d) Election
 AllowsDisposition When
Not Required

© 2007, Clarence Byrd Inc. 18

 Departure From Canada
 Problems

 Consistency

 Avoidance Through
Treaties

© 2007, Clarence Byrd Inc. 19

Departure From Canada
 Security For Tax
 Tax Could Be
Burdensome
 Deemed Security On 1st
$100,000
 No Interest On Amounts
Secured

© 2007, Clarence Byrd Inc. 20

 Departure From Canada
 Unwinding a disposition
Maxine Howard leaves Canada on December 1,
2007. At that time, she owns shares of a
private corporation with a FMV of $340,000
and an ACB of $220,000. As a result of the
deemed disposition/reacquisition, she has a
taxable capital gain of $60,000. In 2009, she
returns to Canada. She still owns the shares
and they have a FMV of $430,000.

© 2007, Clarence Byrd Inc. 21

 Departure From Canada
 Unwinding A Disposition
 At Departure
POD $340,000
ACB 220,000
Capital Gain $120,000

© 2007, Clarence Byrd Inc. 22

 Departure From Canada
 Unwinding A Disposition
 On Return – Election Under ITA 128.1(6)
Reverses Deemed Disposition On Departure
Amended Return
No Disposition On Departure – No Reacquisition
On Return
Taxable Canadian Property Only

© 2007, Clarence Byrd Inc. 23

 Short-Term Residents
 60
Months Or Less In Last
Ten Years
 No Deemed Disposition On
Property Owned Before Last
Becoming Resident
 Still Applies To Property
Acquired As A Resident

© 2007, Clarence Byrd Inc. 24

 Emigration And Stock Options
 Problem For Individuals
Holding Shares Acquired
Through Options

© 2007, Clarence Byrd Inc. 25

 Emigration And Stock Options
 ITA7(1.6) – No Deemed Disposition For
Purposes Of Determining Employment Income
Inclusion (CCPCs)

© 2007, Clarence Byrd Inc. 26

 Emigration And Stock Options
 1,000 shares – Option Price $10
 Exercise when market price $12, defers
employment income inclusion
 Leaves Canada when market price $15

Deemed POD $15,000

Employment Income ( 2,000)
ACB ( 10,000)
Capital Gain $ 3,000

© 2007, Clarence Byrd Inc. 27

 Death Of A Taxpayer
 Deemed Disposition At FMV
Of Capital Property
 Property With:
A Cost Of $100,000,
A FMV Of $80,000, And
A UCC Of $50,000.
 New UCC = $80,000
 Retain Old ACB = $100,000

© 2007, Clarence Byrd Inc. 28

 Deemed Disposition
 Transfers To Spouse
 RolloverUnder ITA 70(6)
 Can Elect Out

 Transfers To Others
 At FMV
 Other Tax Free Transfers
 Farm Or Fishing Property
To A Child

© 2007, Clarence Byrd Inc. 29

 Filing Returns
 OrdinaryReturn For
Previous Year
 Between Oct. 1 And
April 30 Get 6 Months
 OrdinaryReturn For
Year Of Death
 Between Oct. 1 And
April 30 Get 6 Months

© 2007, Clarence Byrd Inc. 30

 Filing Returns
 Rights Or Things Return
 One Year From Date Of Death
 Uncashed Bond Coupons,
Declared But Unpaid Dividends,
And Accrued Wages To
Payment Date
 Unincorporated Business
6 Months From Date Of Death

© 2007, Clarence Byrd Inc. 31

 Deductions And Credits
 All Returns
 Basic Personal
 Age
 Spousal
 EligibleDependant
 Caregiver
 Infirm Dependant

© 2007, Clarence Byrd Inc. 32

 Deductions And Credits
 Discretionary Split
 Adoption Expense
 Disability
 Interest On Student Loans
 Tuition, Education, Textbook
 Tuition And Education Transfer
 Medical Expenses
 Donations

© 2007, Clarence Byrd Inc. 33

 Deductions And Credits
 With Related Income
 CPP And EI
 Pension Income
 Home Relocation Loan
 Stock Option Deduction
 Social Benefits Clawback

© 2007, Clarence Byrd Inc. 34

 Deductions And Credits
 Ordinary Return
 RPP Deductions
 RRSP Deductions
 Union Dues
 Transfers From Spouse
 Child Care Expenses
 ABILs
 Moving Expenses
 Support Payments
 Capital Gains Deduction
 Child Care Expenses
 Losses Of Other Years

© 2007, Clarence Byrd Inc. 35

Other Considerations
 Payment Of Tax
 Can Pay Over 10 Years
 Interest Will Be Assessed

 Allowable Capital Losses

 AgainstAny Type Of Income In
Year Of Death

© 2007, Clarence Byrd Inc. 36

Deferred Income Plans At
Death
 TaxationOf Payments
Determined By The Identity Of
The Beneficiary
 Matured And Unmatured RRSPs
And RRIFs
 Spouse Or Common-Law Partner
 Estate
 Other

© 2007, Clarence Byrd Inc. 37

Special Rules
 Charitable Donations
 Subject To Limit Of
100% Of Net Income
 Not Claimed In Year
Of Death, Carry Back
One Year

 Medical Expenses
 Period Extended To
The 24 Months Prior
To Death

© 2007, Clarence Byrd Inc. 38

© 2007, Clarence Byrd Inc. 39