Two common-law partners - within the meaning of s. 248(1) - separated on June 1, 2012 and started living separate and apart because of a breakdown of their common-law relationship. On separation, a rental property was transferred between them for no consideration, and the transferee (the “Transferee”) died on August 14, 2012.
1. Is the 90-day limit stated in the definition of "common-law partner" in subsection 248(1) applicable to subsection 74.5(3)?
2. Which of the transferor ("Transferor") or the Transferee is taxed on the rental income from June 1, 2012 to August 14, 2012, on the taxable capital gain and recapture of depreciation from the deemed disposition on death?
CRA responded:
1. Subsection 74.5(3) does not require a minimum time for individuals to be considered as living separate and apart from one another because of the breakdown of a common-law relationship. Thus, in the particular situation, the two taxpayers could, according to the facts, be considered as living separate and apart from each other for the purposes of subsection 74.5(3), notwithstanding the fact that they are deemed living together in a conjugal relationship for the purposes of the definition of "common-law partner" in subsection 248(1).
Respecting Q.2, CRA noted that, in light of s. 74.5(3)(a), s. 74.1(1) would not apply to the 2 ½ months’ of rental income and the recapture, so that it would be included in the Transferee's income; and that provided a s. 74.5(3)(b) election was made, s. 74.2(1) would not apply to attribute the amount of the taxable capital gain to the Transferor.