G. Kauppinen (613) 995-0051
XXXX
June 12, 1986
Dear Sirs:
This is in reply to your letter dated April 24, 1986 regarding attribution of gains on disposal of identical properties.
The situation you have outlined is as follows. A taxpayer acquired identical properties in an arm's length transaction after 1971 and there- after acquired other properties identical to them from his spouse who had also acquired them after 1971 in an arm's length transaction.
Since the properties are identical and were acquired after 1971, the provisions of section 47 of the Income Tax Act ("Act") will be applicable in determining the adjusted cost base of the properties for the purpose of computing a gain or loss on any subsequent disposition. Your specific question is, for purposes of the attribution rules contained in sections 74.1 through 74.5 of the Act,'when will a disposition of part of the identical properties produce a gain or loss which is attributable to the spouse and how is any attributable gain or loss calculated.
As stated in our previous correspondence, it is our view that the intent of the attribution rules is to put the transferor of property in the same tax position he would have been in had he disposed of the property at arm's length himself. Subsection 74(1) of the Act has been repealed but is replaced by new subsection 74.1(1) of the Act which retains essentially the same wording as the original subsection. Subsection 74(1) of the Act is still applicable for transfers of property prior to May 23, 1985 (including any substituted property).
Consequently, in our opinion, a reasonable method of dealing with attribution on a partial distribution of identical properties continues to be as follows. The costs of properties on which gains or losses are attributable to another taxpayer would be segregated. In the vocabulary of Interpretation Bulletin IT-199 . this would constitute a fourth group and in the same manner as group three it would contain as many lots as there are separate acquisitions of this nature. Groups one and three must be exhausted before any disposition may be considered to be of properties of groups two and four. At that point the taxpayer may decide whether a particular disposition is of properties of group two or of group four or is partly from each group.
These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case and, as stated in paragraph 24 -of Information Circular 70-6R, they-are not binding on this Department.
We trust the foregoing is of assistance.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch