TSG (Tax Specialist Group) - Non-Residents Can Use Subsection 164(6) (Subsection 164(6))

Non-Residents Can Use Subsection 164(6)

Subject: Subsection 164(6)
Number: 09-03
Date: 2/13/2009

This election will not be available on property held in joint tenancy

In order to eliminate double tax as a result of the death of a taxpayer, subsection 164(6) of the Income Tax Act is often used. Subsection 164(6) allows executors to carry a capital loss realized in an estate back to offset capital gains realized in the taxpayer’s final tax return. However, the election is only available if the loss is realized within the first taxation year of the estate.

While the application of this subsection is common in respect of tax planning for Canadian taxpayers, it is also available to non-residents. Since there is no restriction in the definition of a taxpayer for the purposes of subsection 164(6), the CRA has confirmed that it is applicable to both residents and non-residents of Canada.

However, because non-residents are only required to include taxable capital gains a nd allowable capital losses from the disposition of taxable Canadian property (“TCP”) in their taxable income earned in Canada, the use of subsection 164(6) will be limited to losses from the disposition of TCP.

Of note is that the election is available with respect to a loss from the disposition of TCP that occurs in any period not exceeding 12 months from the date of death of a non-resident. This is a more generous result than may be realized by a resident decedent, since a resident’s estate may have a year end that is less than 12 months from the date of death.

However, for both resident and non-resident taxpayers, this election will not be available on property held in joint tenancy. In these situations, ownership of the deceased taxpayer’s property is automatically transferred to the surviving joint tenant and is considered to pass outside of the estate. The result, even if the surviving joint tenant disposes of the property at a loss, is that the estate cannot carry back the loss, as it would not be considered to be the owner of the asset and so would not be deemed to have incurred the loss.

When undertaking estate planning for non-residents, remember the possible application of ss 164(6). No matter where the taxpayer is resident, a review of jointly owned assets may be appropriate.

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