Principal Issues: Whether the property owned jointly by three individuals could be partitioned twice over the course of several years
Position: Question of fact.
Reasons: If the requirements of subsection 248(21) for each partition.
2006-020574 XXXXXXXXXX Shelley Lewis (613) 941-7239 May 9, 2007
Dear XXXXXXXXXX:
Re: Partition of Property
We write in response to your letter of September 15, 2006, wherein you inquired whether property owned jointly by three individuals could be partitioned twice over the course of several years.
You have provided the following hypothetical scenario:
1. Three parties, Owner A, Owner B and Owner C (collectively the "Joint Owners" or singularly a "Joint Owner"), are equal co-tenants in a co-tenancy consisting of one 200-acre parcel of undeveloped land (the "Original Parcel").
2. The Joint Owners will apply to subdivide a portion of the Original Parcel to create 150 lots and one remaining undivided parcel of land (the "Remaining Parcel").
3. The Joint Owners will transfer to each Joint Owner 50 lots (each lot having an equal fair market value) so that each Joint Owner will have a divided interest in 50 lots and an undivided 1/3 co-tenancy interest in the Remaining Parcel.
4. Several years later the Joint Owners will subdivide the remaining parcel and create 120 lots (each lot having an equal fair market value) and one remaining undivided parcel (the "Second Remaining Parcel").
5. The Joint Owners will transfer to each Joint Owner an undivided interest in 40 parcels (each lot having an equal fair market value) and one-third co-tenancy interest in the Second Remaining Parcel.
Your Opinion
Subsection 248(21) of the Income Tax Act (the "Act") will apply to both subdivisions and partitions such that subsection 248(20) of the Act is not applicable. In the case of the first subdivision the new interest of each Joint Owner will be deemed to be the continuation of that person's undivided interest in the Original Parcel and in the case of the second partition the new interest of each Joint Owner will be deemed to be a continuation of that person's undivided interest in the Remaining Parcel.
In particular, it is your view that subsection 248(21) of the Act will apply to the second subdivision and partition on the basis that, following the first subdivision and partition, the Remaining Parcel will represent "a property". The word "property" in the preamble to subsection 248(21) of the Act and the phrase "parcel of land" in paragraph 248(21)(c) of the Act, both refer to the piece of land held by the joint owners prior to the subdivision. Once the piece of land has been subdivided into several parcels, for the purposes of applying subsection 248(21) of the Act to the first subdivision and partition, all these parcels will be regarded as one property. As you noted, the Department of Finance's May 1991 Technical Notes, highlight the significance of paragraph 248(21)(c) in the case of subdivisions. They state, "If it was not for this rule, a distribution or allocation of lots following a subdivision of a parcel of land might not technically be possible under the main rule". It is your view these notes reflect that at the purpose of paragraph 248(21)(c) is not to preclude a future subdivision and partition of the remaining jointly owned lands as future phases are registered.
In applying subsection 248(21) to the second subdivision and partition, it is your view that the Remaining Property should be considered "a property" and the reference to "parcel of land" in paragraph 248(21)(c) of the Act should refer to the 120 lots in phase two and the Second Remaining Parcel.
You submit that the above conclusion is supported by Rulings Document 9134825, dated January 27, 1992, and Rulings Document 9730823, dated June 25, 1999.
Our Comments
If it is a fact that each subdivision was in contemplation of, or in the course of each partition, we would generally agree with your analysis of the application of paragraph 248(21)(c) of the Act.
We trust these comments are of assistance.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch