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Mary Evans
(613) 957-2136July 18, 1986
Dear Sirs:
This is in reply to your letter of March 7, 1986, regarding the provisions of subsection 70(6) and paragraph 248(8)(b) of the Income Tax Act (the Act) and Ontario's Family Law Act, 1986 (FLA). We apologize for the delay in replying.
Under section 6 of the FLA, when a spouse dies leaving a will, the surviving spouse shall elect to take under the will or to receive the entitlement under section 5 of the FLA; end when a spouse dies intestate, the surviving spouse shall elect to receive the entitlement under Part II of the Succession Law Reform Act or to receive the entitlement under section 5 of the FLA.
Where the surviving spouse elects to receive the entitlement under section 5 of the FLA, the gifts made to him or her in the deceased spouse's will are revoked and the will shall he interpreted as if the surviving spouse had died before the other and, where the spouse dies intestate, the surviving spouse shall he deemed to have disclaimed the entitlement under Part II of the Succession Law Reform Act. To satisfy a claim under section 5 of the FLA, section 5 of the FLA, empowers the court to order the payment of a sum of money to the surviving. Spouse, determined by a calculation of the spouses' respective "net family properties and, if there are liquidity problems, to order that property of the estate he transferred to the surviving spouse to satisfy the obligation under the order to pry sum, of money.
You question that the rollover provision of subsection 70(6) of the Act will apply to transfers of capital property ordered under the FLA since they are made to satisfy the payment of a sum of money and not "as a consequence" of the deceased spouse's death as required under that subsection of the Act.
It is your view that even if the surviving spouse's election to receive the entitlement under section 5 of the FLA, thereby forfeiting entitlement under the will or under the rules of intestacy, is tantamount to a disclaimer with the result that paragraph 248(8)(b) of the Act may have application, the transfer of property is the result of the surviving spouse making an election to receive under the FLA and is in satisfaction of a sum of money, but is not a transfer made "as a consequence of the death of the deceased spouse".
It is our opinion that the right of the surviving spouse to make an election to receive the entitlement under section 5 of the FLA arises "as a consequence of death" (based on the judgement in the Hills case ( 83 DTC 5365) which presumes such is the case with regard to dependant' relief orders and the lack of any cases dealing specifically with this issue seems to indicate that this opinion is generally held). Further, it is our view that an election to receive under the FLA rather than to take under the will or under the rules of intestacy is an act by which the surviving spouse refuses to accept an estate conveyed to him or her by will or under the rules of intestacy and constitutes a disclaimer under the will or under the Succession Law Reform Act, as contemplated by subsection 6(7) and (8) of the FLA. Paragraph 248(8)(b) of the Act states that a transfer of property as a consequence of a disclaimer, release or surrender by a person who was a beneficiary under the will or other testamentary instrument or on the intestacy of a taxpayer shall be considered to be a transfer as a consequence of the death of the taxpayer.
With respect to the comments by Pratte, J., in the Hillis case, it would seem he was simply saying that, under the Intestate Succession Act, the rights to a particular property do not accrue until a court order awarding them and that they do not have retroactive effect so as to bring them within the 15 month rule (at that time) of subsection 70(6) of the Act. He did not question whether the property was transferred as a consequence of the death of the taxpayer.
To sum up, we advise that the provision of subsections 70(6) and 248(8) of the Act are applicable to a court ordered transfer of property resulting from an election under the FLA following the death of a spouse. The fact that the surviving spouse receives capital property at fair market value to satisfy the entitlement under the FLA does not prevent the application of subsection 70(6) of the Act.
We trust our comments will be of assistance.
Yours truly,
ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR
P. D. FUCCO
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch