Brosamler v The Queen, 2012 TCC 204

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What Can an Estate do with Capital Losses Realised on Disposition of Capital Property Received from the Deceased?

Estate of Late Gunnar Brosamler v The Queen, 2012 TCC 204

There were two main issues in this appeal:

1 – Whether capital losses realised by the estate upon disposition of capital property in the first year of the estate could be used, pursuant to paragraph 164(6)(c) of the ITA, as capital losses of the deceased’s terminal year against gains on the same properties.

2 – Whether probate and legal fees added to the ACB of properties, for a secondary probate in BC, OR ought to be deducted as an outlay or expense for the purpose of disposing of the properties.

The taxpayer, a resident of Germany, died in Germany with the result that three BC properties owned by him were deemed disposed by the ITA.

The executrix (who is also the sole beneficiary under the will) of his estate determined that, due to the large capital gains on the deemed disposition and the burden of the inheritance tax payable in Germany, two properties had to be sold to raise about $3 Million.

Two properties were sold within the first year following the death of the deceased, and each case a capital loss was realised.  The legal representative elected pursuant to paragraph 164(6)(c) of the ITA, such that capital losses realised by the estate were deemed to be capital losses of the deceased in his final taxation year.

The Court held that probate and legal fees incurred for the estate to gain title to properties such that they could be sold as a right to property that could be registered under the Land Title Act, are property added to the ACB of the properties as the cost of acquiring them. As such, losses due to the above amounts are also properly carried back to the terminal year pursuant to paragraph 164(6)(c) of the ITA.

The court began by referring   toHMTQ v Stirling, [1985] 1 CTC 275, where itwas stated that   “costs” in the section relating to the calculation of capital   gains refers to the amount laid out to get the asset, and does not include   expenses incurred to put a person in aposition to pay that price or keep the   propertiesthereafter.The Crown relied on the BC Estate Administration Act which   provided at subsection 77(1) that ” Despite a testamentary disposition,   if real estate is vested in a person without a right in any other person to   take by survivorship, on the person’s death it devolves to and becomes vested   in the person’s personal representatives as if it were a chattel real vesting   in them”, and thus the secondary probate was not needed for the estate   to gain title to the property.  The Crown   also relied on Gorrest v Howe,   [1952] 1 DLR 717 (BCCA), where it was stated that an unregistered instrument   is not inoperative to pass title to an estate, and does vest an equitable   title despite lack of registration.
The Court, However, noted that   what the Estate sold was not the interest the estate acquired under the BC   Act, or the interest acquired by an unregistered conveyance, but an interest   that could be registered under the Land   Title Act by the purchaser.  To do   this, the Estate had to incur the probate and legal fees, and thus aportion   of these costswere incurred to acquire title to the properties whichwere   sold. They were properly added to the ACB of the properties as the cost of   acquiring the properties by the Estate. The court added the costs in  proportion of the value of the properties in BC.  The Court noted that even if they are not   added to the ACB, the probate and legal fees would be deductible as a cost of   disposing of the properties for the purpose of determining the capital   gain/loss from the disposition.Thus, the costs added to the   ACB, and increasing the capital losses to the Estate, could be carried back   to the deceased’s terminal year pursuant to paragraph 164(6)(c).

– Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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