I-3 - Taxation Act

Section 796.8 Disposition versions

2021-06-02

796.8. Where, immediately before an individual’s death, the individual owns an eligible unit that the individual acquired as a participating farmer from an eligible trust, the following rules apply:

(a)  the individual is deemed to dispose of the eligible unit immediately before death (such a disposition being referred to in this section as the “particular disposition”);

(b)  where the conditions of the second paragraph are met, the following rules apply:

i.  the individual’s gain from the disposition is deemed to be nil,

ii.  the cost amount to the succession of the eligible unit is deemed to be nil,

iii.  any amount that is included in computing the succession’s income (determined without reference to this subparagraph, paragraphs a and b of section 657 and section 657.1) for a taxation year from a source that is an eligible unit is, despite section 652, deemed to have become payable in that taxation year by the succession to the spouse, and not to have become payable to any other beneficiary,

iv.  the distribution is deemed to be a disposition by the succession of the eligible unit for proceeds equal to the cost amount to the succession of the unit,

v.  the part of the spouse’s interest as a beneficiary under the succession that is disposed of as a result of the distribution is deemed to be disposed of for proceeds of disposition equal to the cost amount to the spouse of that part immediately before the disposition,

vi.  the cost amount to the spouse of the eligible unit is deemed to be nil, and

vii.  the spouse is deemed to have acquired the eligible unit as a participating farmer from the eligible trust, except for the purposes of the second paragraph; and

(c)  where not all the conditions of the second paragraph are met, the following rules apply:

i.  the individual’s proceeds from the particular disposition are deemed to be equal to the fair market value of the unit immediately before the particular disposition,

ii.  the gain from the particular disposition is deemed to be included, under section 428 and not under any other provision, in computing the individual’s income for the individual’s taxation year in which the individual dies,

iii.  section 1032 applies in respect of the deceased individual in relation to the particular disposition as if a reference in that section to sections 433 to 435 included a reference to section 428 in the application of section 1032 to the gain from the particular disposition, and

iv.  the person who acquires the eligible unit as a consequence of the individual’s death is deemed to have acquired the eligible unit at the time of the death at a cost equal to the individual’s proceeds, described in subparagraph i, from the particular disposition.

The conditions to which subparagraphs b and c of the first paragraph refer are as follows:

(a)  the individual is resident in Canada immediately before the individual’s death;

(b)  the individual’s succession that is a graduated rate estate acquires the eligible unit on and as a consequence of the death;

(c)  the individual’s legal representative makes a valid election under subparagraph iii of paragraph c of subsection 8 of section 135.2 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) that paragraph b of that subsection 8 not apply to the individual in respect of the particular disposition;

(d)  the succession distributes the eligible unit to the individual’s spouse at a time at which the succession is the individual’s succession that is a graduated rate estate;

(e)  the individual’s spouse is resident in Canada at the time of the distribution; and

(f)  the succession does not dispose of the unit before the distribution.

Chapter V.2 of Title II of Book I applies in relation to an election referred to in subparagraph c of the second paragraph.

2021, c. 14, s. 101.