Principal Issues: [TaxInterpretations translation] Respecting a property that was bequeathed to taxpayers in XXXXXXXXXX, what date should be used to determine the adjusted cost base?
Position: In this case, on the Valuation Day, December 31, 1971.
Reasons: The Income Tax Act; Income Tax Application Rules.
June 26, 2009
Chicoutimi Tax Services Office Headquarters Business and Partnerships Division Attention: Céline Sheehy François Bordeleau, Advocate
2009-031950
Inherited property - determining adjusted cost base
This is further to your email we received on April 27, 2009 regarding the date to be used for the determination of the adjusted cost base of an inherited property.
Specifically, you described a situation where taxpayers did not know until XXXXXXXXXX that they had received a bequest from XXXXXXXXXX in XXXXXXXXXX. For the purpose of calculating the adjusted cost base, you wish to know what date the taxpayers should use.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Our Comments
Prior to 1972, capital gains were not subject to taxation under the Act. For the purpose of determining the adjusted cost base of a capital property owned by a taxpayer before 1972, subsection 26(3) of the Income Tax Application Rules ("ITARs") provides that the cost of a capital property owned by a taxpayer since a date before 1972 is the median of the actual cost, the Valuation Day value and the proceeds of disposition.
In this case, we are of the view that the taxpayers acquired the property in question in XXXXXXXXXX and, consequently, their adjusted cost base in respect of that property must be determined under subsection 26(3) of the ITARs. Generally, in a situation such as yours, the adjusted cost base will be the fair market value of the property on the Valuation Day, December 31, 1971.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.