J.E. Grisé (613) 957-8977
October 24, 1986
Dear Sirs:
This is in reply to your letter of September 29, 1986 concerning the treatment, for capital gain purposes, of a gift of an immovable (capital) property with reservation unto the donor of a right of usufruct within the meaning of articles 443 and following of the Quebec Civil Code.
We agree with your view that the gift of a capital property with reservation unto the donor of the right of usufruct constitutes a partial disposition at the time of the gift pursuant to section 43 of the Income Tax Act. The same principle as contained in Interpretation Bulletin IT-226 could be applied to determine the appropriate apportionment of the property's adjusted cost base between the right of usufruct and the residual interest and to evaluate each of these interests. A capital gain could arise at the time of the gift but in calculating the gain, the interest (usufruct) retained would not be included in the proceeds of disposition and only the appropriate apportionment of the adjusted cost base of the property would be used.
We also agree with your view that the termination or expiry of the right of usufruct does not constitute a disposition of property nor, therefore, give rise to any capital gain or loss but rather, constitutes an extinction of such property right.
You asked us to consider the situation of a usufruct for a term of the lifetime of the donor and that of his spouse, and to what extent, if any, such a term might effect the tax consequences. The value of the usufruct could change as a result of the term. In our view, there would be no capital gain or loss upon the death of the donor or his spouse.
Yours truly,
Original signé par; A. THIBAULT for Director Bilingual Services and Resource Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch