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G. Kauppinen
Tel: (613) 957-3495 December 17, 1986
Dear Sirs:
This is in reply to your letter dated October 31, 1986 wherein you requested our opinion with respect to subsection 248(1) and 70(6) of the Income Tax Act ("Act") and Interpretation Bulletin 305R2, specifically paragraphs S through 7 thereof.
You have requested our opinion on the following questions where an estate is being settled amongst potential claimants or, an intestacy:
1) Where a child of the deceased executes a disclaimer with no stipulation as to how the administrator should then distribute the assets of the estate but under a separate document enters into an agreement with the deceased's spouse with respect to the division of the estate assets, would this disclaimer still be effective to permit a rollover under subsection 70(6) of the Act to the spouse of the estate assets to be received by her?
2) Alternatively, will the child's disclaimer have the effect of causing a rollover of all of the estate assets to the spouse end their any assets to be received by the child pursuant to the settlement agreement entered into with the spouse be in effect transferred from the spouse to the child? That is, when assets are transferred to the child under such an agreement, is there first a deemed disposition it the estate or do the tax consequences of the transfer to the child occur in the hands of the spouse?
3) is a declaimer/renunciation by the spouse required in order to cause a deemed disposition in the estate of the assets to be transferred to the child pursuant to the settlement agreement? Would such a disclaimer prevent a rollover under subsection 70(6) of the Act of the assets to be received by the spouse pursuant to the settlement?
It is our understanding that normally, in an intestacy situation, the assets of an estate will be liquidated prior to settling the interests of the beneficiaries. However, it is possible that property of an estate could be transferred "in specie" to beneficiaries in satisfaction of their rights under the laws governing intestacy.
As stated in Interpretation Bulletin 30512, a disclaimer involves an outright refusal to accept a gift, share or interest under a Will, with no stipulation as to how the executors should than distribute the refused gift, share or interest. This principal is also applicable in an intestacy situation. In the hypothetical situation you have described, it is our opinion that a disclaimer by a child which is made subject to some other agreement with the spouse would not be a valid disclaimer for the purposes of paragraph 248(8)(b) and subsection 70(6) of the Act, but only for property of the estate which was the subject of the agreement between the spouse and the child. You should note that it is possible for a beneficiary of an estate to disclaim rights to specific assets of the estate on an asset by asset basis. In an intestacy situation, this say be more difficult but, we understand, not impossible to do.
To the extent that the spouse receives assets from the estate in satisfaction of her rights therein pursuant to the laws governing an intestacy or as a result of the disclaimer by the child then, if the provisions of subsection 70(6) of the Act are otherwise satisfied, a rollover will be available to the spouse pursuant to that subsection and paragraphs 248(8)(a) and (b) of the Act.
However, any of the above-noted assets which are the subject of an agreement with the child could not vest indefeasibly in the spouse. Consequently, for such assets, the rollover provisions of subsection 70(6) of the Act would not be available and these assets would be taxed in the final tax return of the deceased pursuant to subsection 70(5) of the Act.
We trust the foregoing is of assistance.
These opinions are our beat 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.
Yours truly Original Signed by Original signé par A. DULUDE
for Director Financial Industries Division Rulings Directorate Legislative & Intergovernmental Affairs Branch
GK/md