| 920907 | |
| 24(1) | A. Humenuk |
| (613) 957-2134 |
19(1)
June 3, 1992
Dear Sirs:
Re: Rights and Things
We are replying to your letter dated March 20, 1992, concerning the disposition of shares upon the death of a taxpayer and the options available to that taxpayer's representative in reporting dividends on the shares which were declared but unpaid at the time of death.
You asked whether Revenue Canada would accept the fair market value of the shares of a private corporation upon the death of its sole shareholder as being the amount of the retained earnings as of the last reported financial statement date less any dividends that were declared as of that date yet unpaid at the time of death. You further indicate that the corporation does not intend to pay those dividends in the immediate future. Secondly, you have asked us to confirm the tax treatment of those dividends which were declared but unpaid as of the date death.
As the circumstances appear to relate to an actual fact situation, we are unable to provide you with specific comments thereon. Should you wish to obtain the Department's position on your situation, you should contact your local District Taxation Office. We are, however, prepared to offer the following general comments which we hope will be of assistance to you.
The determination of fair market value of the shares involves a finding of fact. The enclosed Information Circular 89-3 "Policy Statement on Business Equity Valuations" outlines the valuation principles, practices and policies that the Department generally considers and follows in thevaluation of shares of closely-held corporations. For further information, you may wish to contact the appropriate Regional Business Valuation Group as indicated in Information Circular 72-25R3 "Business Equity Valuations" which is also enclosed.
In respect of your second query, it is the Department's position as stated in paragraph 12 of enclosed Interpretation Bulletin IT-212R3 "Income of Deceased Persons - Rights or Things" that dividends which are declared but unpaid as of the date of death will qualify as "rights or things" within the meaning of subsection 70(2) of the Income Tax Act provided that the ex-dividend date is prior to the date of death. As a "right or thing" the dividend would be reported on the final return of the deceased taxpayer unless the taxpayer's representative either elected to report the value of all rights and things on a separate return under subsection 70(2) of the Act or transferred the particular right or thing to the beneficiary or other person beneficially interested in the estate within the time periods specified in subsection 70(3) of the Act. Where the right or thing is transferred to a beneficiary within the appropriate time frame, the beneficiary is required to include the amount in income when it is received.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuocofor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch