| 19(1) | File No. 5-9541 |
| D.S. Delorey | |
| (613) 957-3495 |
April 19, 1990
Dear Madam:
Re: Spouse Trusts Deemed Dispositions
This is in reply to your letter of February 1, 1990 concerning the deemed disposition rules contained in subsection 104(4) of the Income Tax Act (the "Act") where the trust is one described in subparagraphs 104(4)(a)(iii) and (iv) of the Act (a "spouse trust").
In particular, you cite the following 15 situations and ask us to confirm the date of the first deemed disposition under subsection 104(4) in each situation.
| Type of Trust | Death of Taxpayer | Death of Spouse | Date of First Deemed Disposition |
| 1. Testamentary | Before 1972 | Before 1972 | January 1, 1993 |
| 2. Testamentary | Before 1972 | January 1, 1972, December 31, 1975 | Death of Spouse |
| 3. Testamentary | Before 1972 | January 1, 1976 - May 25, 1976 | January 1, 1993 |
| 4. Testamentary | Before 1972 | After May 25, 1976 | January 1, 1993 |
| 5. Testamentary | After 1971 | January 1, 1972 - December 31, 1975 | Death of Spouse |
| 6. Testamentary | After 1971 | January 1, 1976 - May 25, 1976 | Death of Spouse |
| 7. Testamentary | After 1971 | After May 25, 1976 | Death of Spouse |
| 8. S.122(2) | n/a | Before 1972 | January 1, 1993 |
| 9. S.122(2) | n/a | January 1, 1972 - December 31, 1975 | Death of Spouse |
| 10. S.122(2) | n/a | January 1, 1976 - May 25, 1976 | Death of Spouse |
| 11. S.122(2) | n/a | After May 25, 1976 | January 1, 1993 |
| 12. S.122(1) | n/a | Before 1972 | January 1, 1993 |
| 13. S.122(1) | n/a | January 1, 1972 - December 31, 1975 | Death of Spouse |
| 14. S.122(1) | n/a | January 1, 1976 - May 25, 1976 | Death of Spouse |
| 15. S.122(1) | n/a | After May 25, 1976 | Death of Spouse |
We agree that the "date of first deemed disposition" shown above reflects the correct date under subsection 104(4) of the Act in each situation.
In situations 4 and 11 above, you suggest that the 1976 amendment to subsection 104(4) was not intended to trigger a deemed disposition on January 1, 1993 where the spouse is alive on that date and you ask for our comments in this regard.
There is nothing in our files to indicate that the dates of deemed disposition in situations 4 and 11 above are unintended, nor do we consider them to be unintended. It is our view that the intent of the 1976 amendments, which are reflected in the present subsection 104(4), was to have paragraph 104(4)(b), rather than 104(4)(a), apply to spouse trusts created before the coming-into-force of the provisions of the Tax Reform Act, which act is reflected in the 1972 Income Tax Act. In other words, the intent in our view was to apply to such spouse trusts the 21-year rule applicable to other types of trusts. While this might be detrimental to the spouse trust where the spouse remains alive after 1992, it is a benefit to the spouse trust where the spouse dies before 1993 such as in situation 3 above.
In situation 3 above, and 4 and 11 above where the spouse has died, you suggest that the trustee may have inadvertently reported a deemed disposition on the death of the spouse. Where this has occurred, you ask if the Department would allow the next date of deemed disposition to be 21 years from the date of the spouse's death, rather than January 1, 1993. It is our view that the law as it presently reads must be adhered to; i.e., a deemed disposition must be recognized on January 1, 1993, where applicable, notwithstanding that an earlier deemed disposition may have been inadvertently reported. Where a trust has inadvertently reported an earlier deemed disposition, the trust representative should contact officials of the relevant District Taxation Office to see if consideration will be given to reducing the capital gains resulting from the 1993 deemed disposition by the capital gains previously reported.
The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 24 of Information Circular 70-6R. We trust however that they are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate