2005-0131741E5 F (the “Letter”) dealt with a specific bequest of works of art to a museum by the will of Mr. X or, if his spouse survived him, to a spousal trust, with the trustees, on her death in turn, being authorized to donate some of the works to the museum to relieve from the tax arising on the spouse’s death under s. 104(4). In a follow-up response regarding whether the capital gain resulting from the deemed disposition of works of art, pursuant to s. 70(5) or 104(4) was not taxable as a result of the application of s. 39(1)(a)(i.1), CRA stated:
[A]ssuming that the conditions of subparagraph 39(1)(a)(i.1) are satisfied for each of the works of art deemed to be disposed of to Mr. X under subsection 70(5), the capital gain resulting for Mr. X from that deemed disposition would be excluded for the purposes of subsection 39(1) provided that the disposition occurs within the time period referred to in clause 39(1)(a)(i.1)(A). As for the deemed disposition, described in the alternative situation, which arises from the application of subsection 104(4), the answer given in the Letter remains the same.