Principal Issues: Whether the subsequent death of the taxpayer's spouse before the taxpayer's will was probated and a clearance certificate was obtained has any impact on the application of the provisions which allow the rollover of the property to that spouse under 70(6).
Position: Not necessarily.
Reasons: The fact that the taxpayer's spouse died before the taxpayer's property or properties were transferred to the spouse does not mean that the property could not be vested indefeasibly in the spouse and would not, by itself, impact the application of the rollover provisions in 70(6).
XXXXXXXXXX
2011-039191
Andrea Boyle, CGAFebruary 10, 2011
Dear XXXXXXXXXX :
Re: Transfer or Distribution of Property to Spouse on Taxpayer's Death
I am writing in reply to your letter dated December 28, 2010, in which you had a question regarding the rollover of property to a spouse upon the death of a taxpayer. Specifically you have asked whether the subsequent death of the taxpayer's spouse before the taxpayer's will was probated and a clearance certificate was obtained has any impact on the application of the provisions which allow the rollover of the property to that spouse.
The particular situation outlined in your letter relates to a factual one, involving a specific taxpayer. 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. We are, however, prepared to offer the following general comments, which may be of assistance.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended ("the Act").
The rollover provisions under subsection 70(6) of the Act apply where the capital property of a taxpayer who was resident in Canada immediately before the taxpayer's death is, as a consequence of the death, transferred or distributed to the taxpayer's spouse or common-law partner who was resident in Canada immediately before the taxpayer's death, if it can be shown, within a certain period, that the property has become "vested indefeasibly" in the spouse or common-law partner.
"Vested indefeasibly" is not defined in the Act, but its meaning is discussed in the Canada Revenue Agency's archived Interpretation Bulletin IT-449R Meaning of "Vested Indefeasibly". Vesting indefeasibly refers to an enforceable right to obtain absolute ownership of a property within 36 months of the deceased's death or some other reasonable period of time. For instance, if the ultimate and absolute ownership of a property is bequeathed to a particular individual and the individual's ownership rights cannot be defeated by any future event and no other person has any right whatsoever to that property, the property will be considered to vest indefeasibly in that individual.
This right of ownership can occur even if the title has not yet been transferred via a legal conveyance or by registration if, for example, there is a specific, non-contingent bequest to a spouse or common-law partner after the death of the taxpayer, and if it is clear that there are sufficient assets available in the estate to allow for the distribution of the specific bequest. Whether a particular will creates a specific bequest to a spouse can only be ascertained after an examination of the will.
If a bequest is not specific, a property will only vest when it has been specifically identified and a beneficiary has an enforceable right to the property. Also, where an executor, in the proper administration and settling of the estate, must dispose of a property that was otherwise the subject of a specific bequest, we would conclude that the property had not vested indefeasibly in the beneficiary prior to its disposal.
Whether a property has vested indefeasibly is therefore a question of fact to be determined by the facts, circumstances, and evidence in each particular situation. However, in our view, assuming that the property or properties were vested indefeasibly with the spouse before his or her death, the fact that the spouse died before the property or properties were transferred or distributed would not, by itself, impact the application of the rollover provisions in 70(6).
We trust that these comments will be of assistance.
Yours truly,
Guy Goulet CA, M.Fisc.
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch