Administrative Policy
23 April 2013 Memorandum 2012-0466081I7 F - Usufruct created under French legislation
A Canadian-resident taxpayer who lived outside Canada made a transfer without consideration (the "Gift") to her adult children of a building and subjacent land situated in France (the "Building"), which had appreciated subsequent to its acquisition by the taxpayer. The Gift was made as a shared gift (donation-partage) in accordance with s. 1075 of the French Civil Code ("C.c.f."), with the taxpayer reserving, as permitted by s. 949 of the C.c.f., a usufruct in her favour during her lifetime (the "Arrangement"), so that she was entitled to all the income from the Building.
After noting that the creation of a usufruct governed by the C.c.f. did not give rise to a deemed trust under s. 248(3), CRA stated (TaxInterpretations translation):
…the Taxpayer is deemed to have disposed of the Building for consideration equal to its FMV and…the children were deemed to have acquired the property for the same value, all in accordance with the provisions of paragraphs 69(1)(b) and (c).
After also indicating that s. 43.1(1) applied, it stated:
...the taxpayer is deemed to have disposed of her Arrangement respecting the Building for proceeds equal to its FMV at the time of its creation…and to have acquired it, immediately after that time, at a cost equal to such deemed proceeds of disposition.
27 November 1996 T.I. 5-962063
Where a corporation gave a remainder interest in ecologically sensitive land to a heritage or conservation organization and retained a life interest pur autre vie (namely, the joint lives of the shareholders of the corporation and their children), s. 43.1 would not apply because Canadian municipalities or registered charities excluded from the application of s. 43.1.
24 March 1995 T.I. 950163 (C.T.O. "Principal Residence - Life Estate - Beneficial Ownership")
After noting that s. 43.1 did not apply because the transfer of a remainder interest by parents to their children occurred before 20 December 1991, RC stated:
"The value of a life estate in real property at a particular time is the difference between the current value of the real property and the value of the remainder interest in the real property. The fair market value of the remainder interest in the real property is determined by what a typical purchaser would currently pay for a fee simple ownership in the property subject to a life estate of certain identifiable persons. This is the future value of the present worth of the real property calculated using the life expectancy of the life tenants and an appropriate discount rate."