5-903674
Dear Sirs:
This is in reply to your letter of December 14, 1990 and a subsequent telephone conversation on January 31, 1991, (Mundell concerning the availability of the capital gains deduction provided in section 110.6 of the Income Tax Act (the "Act") to a spouse, arising on the rollover of a deceased person's tax reserves.
You have asked us whether the wife, in her 1990 income-tax-return, may use the unused portion of her capital gains exemption to reduce the capital gain arising on the difference between the reserve brought into her income (the amount that was claimed on the husband's terminal return) and the new reserve that was deducted by her as permitted by subparagraph 72(2)(c)(ii).
The fact situation you have provided is as follows:
24(1)
Our Comments
Since the situation described above appears to involve actual taxpayers and proposed transactions, that would more appropriately be dealt with by way of an advanced income tax ruling, we are unable to comment specifically on the issues set out in your letter. However we offer the following general comments regarding the rollover of reserves on death and the application of the capital gains deduction to such reserves.
Section 72 of the Act provides rules applicable to certain reserves in the year of a taxpayer's death. Subsection 72(2) provides special rules to allow a rollover of a deceased taxpayer's tax reserves to a spouse or a spouse trust if certain conditions are met. If the rollover applies, the capital gains reserve claimed by the deceased taxpayer in his final return is treated as a capital gain of the spouse or spouse trust, as the case may be, from a disposition of capital property in the first taxation year ending after the death of the taxpayer. Amendments to the Act in 1988 (1988, c.55. s. 50) permit capital gains of the spouse or spouse trust, arising from dispositions of property occurring after 1984 and rolled over pursuant to subsection 72(2), to qualify for the capital gains exemption.
We trust this will be of assistance.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch