| 19(1) | File No. 5-8584 |
| G. Thornley | |
| (613) 957-2101 |
September 22, 1989
Dear Sirs:
Re: Subsection 110.6(5) of the Income Tax Act
This is in reply to your letter of August 21, 1989, requesting a technical interpretation in respect of the application and interaction of subsections 110.6(2), (2.1), and (3) of the Act with subsection 110.6(5) of the Act.
In particular you ask if the various capital gains exemptions are available to an individual who becomes resident on April, 1989 and subsequently, using 5 different scenarios, disposes of capital property.
Our comments below follow the order of your questions and all answers assume residency obtained on April 1, 1989.
Our Comments
1) An individual who dies in 1989 after becoming a resident and after disposing of capital property in that year is not entitled to a capital gains exemption on any capital gain arising from that disposition. Although the individual was resident for a time in 1989 he was neither factually resident in Canada throughout the 1989 (taxation) year nor deemed a resident in 1989 by subsection 110.6(5) of the Act.
2) As the facts are the same as in I except for the fact that the disposition of the capital property is by virtue of subsection 70(5) of the Act, the answer is the same. There is no capital gains exemption entitlement.
3) Where the individual disposes of capital property in 1989 after becoming resident he must report his capital gain in that year. Where, however, he subsequently dies in 1990 his estate may refile his 1989 return in order to claim a capital gains exemption in that year. This is so because in the Department's view the individual's taxation year ends at the time of death. Hence for purposes of refiling 1989 he would meet the condition in subsection 110.6(5) of being resident throughout the immediately following year and would then be deemed by that subsection to have been, in 1989, resident in Canada throughout the taxation year as is required by subsections 110.6(2), (2.1) or (3).
4) Where the individual disposes of capital property in 1990 and realizes a capital gain he must report it. However, because he also dies in 1990, his taxation year is considered to end at that time. Thus he may claim a capital gains exemption as he will have met the condition in any of subsections 110.6(2), (2.1) or (3) that he "was resident in Canada throughout the (taxation) year".
5) Where the facts are the same as in 4 above except that the disposition is pursuant to subsection 70(5), the answer is the same as in 4.
We trust our comments will prove satisfactory, however, as stated in paragraph 24 of Information Circular 70-6R such expressions of opinion are not rulings and are not binding on the Department.
Yours truly,
for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch