| File 902630 |
1990 Round Table
QUESTION I29
Capital Gains Deduction - Sale to Spouse
An individual owns all the shares of a corporation. In order to "crystallize" his capital gains deduction, the individual sells his shares to his spouse, elects not to have the provisions of subsection 73(1) of the Act apply, and claims a capital gains deduction under section 110.6 of the Act. Would subsection 245(2) of the Act apply to such transactions and, if so, with what result?
DEPARTMENT'S POSITION
Since there is no indication in the Act that a capital gain must arise from an arm's-length disposition in order to be eligible for the capital gains deduction, we generally will not seek to apply subsection 245(2) of the Act in circumstances such as those described.
However, it should be noted that the capital gains deductions set out in subsections 110.6(2), (2.1) and (3) require that the taxpayer dispose of property. If there is merely a transfer in legal title to the spouse, without any change in beneficial ownership, a disposition will not have taken place, by virtue of paragraph 54(c)(v) of the Act.
Prepared by: Lois A. McCarron-McGuire