2015-0580531E5 joint account & estate returns

Principal Issues: TREATMENT OF PROPERTY HELD IN JOINT OWNERSHIP AT DEATH

Position: LEGAL DETERMINATION REQUIRED

Reasons: TAX TREATMENT DEPENDS ON LEGAL & BENEFICIAL OWNERSHIP OF THE PROPERTY. IF SECONDARY PERSON IS ONLY A NOMINEE ON THE PROPERTY WITH NO OWNERSHIP RIGHTS, THE DISPOSITION OF THE ENTIRE PROPERTY WOULD BE DEEMED UPON THE DEATH OF THE PRIMARY TAXPAYER. IF THE PROPERTY WAS A TRUE JOINT OWNERSHIP, THE TREATMENT IS DIFFERENT.

Author: Holloway, Lena
Section: 70(5); 104(13)

XXXXXXXXXX
                                                      2015-058053
                                                      Lena Holloway

June 10, 2015

Dear XXXXXXXXXX,

Re: 2014 Estate Return

This letter is in response to your e-mail enquiry received by our Directorate on April 7, 2015 written after several unsuccessful attempts to contact by telephone (Holloway/XXXXXXXXXX). The scenario outlined in your letter follows. 

Your mother passed away in 2014.  At the time of her death you had a “joint investment account” held through an investment firm with your mother.  You stated that you were added as a joint account holder in XXXXXXXXXX and that these holdings were not 50/50 as to ownership.

After your mother died, the investment firm transferred the account solely to your name.  Your mother’s will specified that her estate was to be divided equally between you and XXXXXXXXXX.  In order to comply with the terms of the will, the shares held in the investment account were sold with the intention that the proceeds be divided equally among XXXXXXXXXX.

You had asked specifically how the capital gain arising upon the sale of the shares should be reported and by whom, however the technical interpretation which follows will provide general comments about the provisions of the Income Tax Act.  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations (see http://www.cra-arc.gc.ca/E/pub/tp/ic70-6r6/README.html).

Our Comments

Your questions relate to property held by your late mother upon her death and you stated that you were also named as a joint account holder on her investment account.  It is our view that your enquiry is not a matter of income tax legislation interpretation but rather requires a legal determination of property ownership.  The Canada Revenue Agency does not provide legal advice or opinions to third parties and does not issue rulings on the interpretation or application of common law or Provincial trust legislation.  Income tax consequences arising from the deemed disposition of property upon the death of an individual will only occur where the deceased had legal and beneficial ownership of that property.

Any tax consequences of the deemed disposition of your mother’s share of this property upon her death is to be reported on her final tax return (see  Chapter 4 of guide number T4011 Preparing Returns for Deceased Persons 2014, available on the CRA website at http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html )

If the entire property belonged to your mother and you were merely a nominee on the account with no rights of beneficial ownership, then 100 percent of the property would be deemed to be disposed of at fair market value on the date of your mother’s death. Any gain or loss from that deemed disposition would be reported on the final return of the deceased.  The estate would then be deemed to have acquired this property at this fair market value.  Any subsequent gain or loss realized shortly thereafter from the actual disposition of the property held by the estate would be reported by the trustee in the T3 return of the estate.  Proceeds from the sale of property, along with any other property held by the estate could be distributed in accordance with the will of the deceased after the payment of debts of the estate including any taxes.

If, however, you were a legal and beneficial owner of a portion of this property then only the portion that your mother owned would be deemed to be disposed of on the date of her death, with any gain or loss on the portion that she owned being reported on her final T1 return.  Then upon subsequent actual disposition of the entire property, you would have to report on your T1 return any gain or loss on the portion of the property that you were legal and beneficial owner of.  Similarly, any gain or loss realized on the portion of the property held by the estate would have to be reported on the T3 return with any taxes levied being paid by the estate.

In summary, the ownership of the property at the date of your mother’s death must be determined before the tax consequences of any deemed or actual disposition of property can be ascertained.

We trust our comments will be of assistance to you.

Yours truly,

Phil. Kohnen
Manager
Trusts Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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