Principal Issues: Follow-up question to question 20(c) of the 2011 CICA Roundtable concerning valuation of a life estate on death of the holder.
Position: General comments provided - valuation issues should be directed to the appropriate TSO.
Reasons: Question of fact
Kimberly Duval
2011-040996
August 8, 2011
Follow-up question to the CICA Roundtable 2011 (question 20(c)) -
The CRA document 2002-0154725 indicated CRA's view that the life interest is deemed disposed of immediately prior to the death of the life tenant, with no provision for a transfer of its cost to the remainder interest holder.
At the death of the life tenant, one would assume that the FMV of the life interest would be nil - would CRA provide reasons why the value would be anything other than nil?
CRA response
The determination of the FMV of the life interest at the time of death of the life tenant is a question of fact. As a matter of practice, the Income Tax Rulings Directorate does not review nor provide advice with respect to the determination of FMV of a particular property at any particular point in time. Specific questions concerning the valuation of a particular life estate for tax purposes should be directed to the valuation section of the appropriate Tax Services Offices.
As previously noted in our original response to the roundtable, under subsection 70(5) of the Income Tax Act (the "Act"), a life tenant is deemed, immediately before death, to have disposed of his or her life interest in a property for proceeds equal to the FMV of the interest at that time. For the reasons set out by the Federal Court of Appeal in The Queen v Mastronardi (77 DTC 5217), the imminence of death is not taken into account in determining the deemed proceeds of disposition of a life interest. Thus, the fact that a life interest ceases to exist upon the death of the holder is irrelevant for purposes of the application of subsection 70(5) of the Act.
That said, however, one would reasonably expect the value of a life interest to decline over time but based on the above comments, we would not generally expect the facts to support a life estate valuation of nil at a time that is immediately before the death of the life tenant.