Principal Issues: [TaxInterpretations translation]
Is the capital gain resulting from the deemed disposition of art under subsection 70(5) of the Act taxable if the provisions of subparagraph 39(1)(a)(i.1) are satisfied?
Position:
Assuming that the conditions of subparagraph 39(1)(a)(i.1) are satisfied for each work of art that is the subject of a deemed disposition under subsection 70(5), the capital gain resulting from that deemed disposition would be excluded for the purposes of subsection 39(1) provided that the disposition occurs within the time period provided for in clause 39(1)(a)(i.1).
Reasons:
Interpretation of the Act.
XXXXXXXXXX Danielle Bouffard
2005-013174
November 4, 2005
Dear Sir,
Re: Request for Technical Interpretation
Subparagraph 39(1)(a)(i.1) of the Income Tax Act (the "Act")
This is further to your email of May 17, 2005, in which you asked us to clarify the answers given in Technical Opinion 2004-009361 (the "Letter"). Specifically, you wish to know whether the capital gain resulting from the deemed disposition of works of art, pursuant to subsections 70(5) or 104(4) as the case may be, is not taxable as a result of the application of subparagraph 39(1)(a)(i.1). We apologize for the delay in responding to this request.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (CRA) not to issue written opinions on proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments. These comments may not, however, apply to your particular situation in certain circumstances.
The exemption in subparagraph 39(1)(a)(i.1) excludes from capital gains a capital gain that results from the disposition of cultural property to a designated institution or public authority in Canada. In the first situation described in the Letter, assuming 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.
These comments are not advance income tax rulings and do not bind the CRA with respect to any particular factual situation.
Best regards,
Alain Godin
For the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Directorate General for Policy and Planning