DATE January 8, 1987
FROM-DE G. Kauppinen Deferred Income Plans and Trusts Section To - A REVIEW COMMITTEE
RE: Subsections 70(9), 70(9.1), 70(9.2), 70(9.3), 70(9.4), 70(9.5), 70(9.6) and paragraph 248(8)(a) of the Income Tax Act ("Act")
ISSUE
A taxpayer has requested our opinion regarding the availability of the above-noted roll-over provisions in section 70 of the Act for farm properties and shares of small business corporations ("the property") where the terms of the Will provide that a beneficiary has an option to purchase the property, the option is subsequently exercised and the provisions of the relevant subsection are otherwise satisfied.
Prior to the enactment of paragraph 248(8)(a) of the Act we had taken the position that the roll-over provisions would not be available where the property was sold by the estate, even when the Will provided for a sale if certain conditions were satisfied. (See IT-349R paragraph 7).
This followed the reasoning in Tory Estate 71 DTC 5271 in which at page 5278 it was stated that property is transferred or distributed to a person in the context of subsection 70(3) of the Act " ... only when such transfer or distribution has been made to him "qua beneficiary" and not to the extent that he has acquired it as a purchaser for value."
Technical Notes dated May 9, 1985 issued by the Minister of Finance, (page 101) indicate that paragraph 248(8)(a) of the Act was enacted to ensure that a roll-over under subsection 70(9) of the Act would be available where consideration has been paid by a beneficiary to a deceased's estate in satisfaction of the terms of a testamentary instrument.
We have always taken the position that the roll-over provisions will be available in a situation where property may be received by a beneficiary who qualifies under section 70 even if the Will states that certain amounts must first be paid to other beneficiaries. (See IT-349R , paragraph 8(d)).
OUR OPINION
In our opinion, because paragraph 248(8)(a) of the Act contains the words "an acquisition of property under or as a consequence of the terms of the Will or other testamentary instrument", the roll-overs should be available where a Will contains an option to purchase a farm property or shares of a small business corporation, the option is subsequently exercised and the relevant provisions of section 70 of the Act are otherwise satisfied.
Chief Deferred Income Plans and Trusts Section