Income Tax Interpretation Bulletin

Capital Property Owned on December 31, 1971 - Actual Cost of Property Owned by a Testamentary Trust

NO: IT-130

DATE: November 20, 1973

SUBJECT: INCOME TAX ACT
Capital Property Owned on December 31, 1971 - Actual Cost of Property Owned by a Testamentary Trust

REFERENCE: Subsection 26(3) of the Income Tax Application Rules, 1971 (ITAR)

1. The actual cost of capital property is a determinant of "cost" in the median rule computation under subsection 26(3) of the ITAR. The Department's view on the determination of actual cost in various situations is expressed in Interpretation Bulletin IT-93 dated March 12, 1973.

2. Interpretation Bulletin IT-93 states in paragraph 4(b) that the actual cost of a capital property acquired by a taxpayer prior to 1972 is

The Bulletin however, is silent as to the actual cost of property acquired by a trust established pursuant to a will which took effect prior to 1972.

3. In such event, where the trust arose at the date of the testator's death and the property was transferred to it out of the estate during or within a reasonable time after the "executor's year", the Department considers that the actual cost of the property to the trust for the purpose of subsection 26(3) of the ITAR is its fair market value at the date of the testator's death. This also applies even if the trust created prior to 1972 constitutes, after 1971, a spouse trust as defined in paragraph 70(6)(b) or 104(4)(a) of the Act. Where, however the trust holding the property on December 31, 1971 did not arise at the date of the testator's death, or where the property was not transferred to the trust within a reasonable time after the "executor's year", in the Department's view the actual cost of the property for the purpose of subsection 26(3) of the ITAR is its fair market value at the time of its actual transfer to the trust.