Transfer of Properties on Separation & Divorce

Volume No. 12-17

“It is also important to consider the various attribution rules that could apply.”

Generally, the Income Tax Act provides for the transfer of properties between related persons to occur at fair market value.  Where the transfer is between Canadian-resident spouses, section 73 of the Act requires the transfers to take place at cost unless an election is filed for the transfer to take place at other than cost. Section 73 will apply to transfers between Canadian resident spouses, common-law partners, former spouses or common-law partners in the settlement of rights arising out of marriage or common-law partnership and a spouse and a qualifying spouse trust.  It should be noted that section 73  only applies to the transfer of a capital property while the parties are still married or living as common-law partners.

Depending on the circumstances, the two separating parties may prefer to elect not to have section 73 apply in respect of a given property and instead have the transfer take place at fair market value.  For instance, It may be beneficial to transfer shares of a qualified small business corporation at fair market value to take advantage of the transferor’s $750,000 capital gains exemption.  Intentionally realizing capital gains on the transfer of property from one spouse to another may also allow the transferor to take advantage of unused capital losses.  The section 73 election is made on a property-by-property basis and therefore it is important for any settlement agreements to specify the properties to which the election will apply.  For instance, this election could apply on a share by share basis.  Transactions where such elections are filed will also increase the adjusted cost base of the particular property to the recipient.

Where properties are being transferred between divorcing parties it is also important to consider the various attribution rules that could apply with respect to future income, losses, capital gains and capital losses that may be realized from the properties.  As a general rule, the attribution rules cease to apply after divorce but could be found to apply where the parties are living separate and apart by reason of marriage breakdown unless certain joint elections are made.  Such attribution rules could inadvertently cause gains inherent in transferred properties to attribute back to the transferring spouse. 

If you have any questions regarding transfers of properties on separation and divorce, please contact your TSG representative.


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The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.