Principal Issues: [TaxInterpretations translation] Does paragraph 73(1.01)(b) apply in a particular situation?
Position: Yes
Reasons: We are of the view that the phrase "in settlement of rights arising out of their marriage or common-law partnership” in paragraph 73(1.01)(b) is sufficiently broad to include the rights created by an ancillary agreement.
XXXXXXXXXX 2011-040095 I. Landry, M.Fisc.
July 13, 2011
Dear XXXXXXXXXX,
Subject: Paragraph 73(1.01)(b) of the Income Tax Act
This is in response to your letter of March 25, 2011 in which you asked for our comments regarding the application of paragraph 73(1.01)(b) of the Income Tax Act (the "Act") in the following situation.
An individual and his spouse, who were married under the separation of property regime, incorporated a Canadian-controlled private corporation (the "Corporation") and each subscribed for 50 common shares. A few years later, they stopped living together. The following year, the taxpayer and his spouse entered into an agreement relating to ancillary matters under which the spouse undertook to transfer to the individual the 50 common shares of the capital stock of the Corporation that she held. In the same year, that agreement was ratified and became enforceable by the divorce order. Subsequently, the shares in question of the capital stock of the Corporation were transferred to the individual.
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
Our Comments
It appears to us that the situation described in your letter and hereinafter summarized could constitute a real situation involving taxpayers. As stated in Information Circular 70-6R5, 2002, it is not the practice of the Directorate to comment on proposed transactions otherwise than through advance rulings. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we can offer the following general comments which may be helpful to you. It should be noted that the application of one or more provisions of the Act generally requires the analysis of all facts relating to a particular situation. Consequently, and in light of the fact that your letter only very briefly describes a hypothetical particular situation, our comments below may not be fully applicable in a particular situation.
Subsection 73(1) applies where a capital property of an individual (other than a trust) has been transferred in the circumstances described in subsection 73(1.01) and the individual has not elected to exclude the capital property from the application of that subsection. Paragraph 73(1.01)(b) addresses, inter alia, the transfer of a property by an individual to the individual’s former spouse in settlement of rights arising out of their marriage. We are of the view that the term "in settlement of rights arising out of their marriage" is sufficiently broad in scope to include the rights created by an ancillary agreement entered into in a divorce context as is the case in the situation you described.
Best regards,
Guy Goulet CA, M. Fisc.
for the Director
Ontario Corporate Income Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch