Taxpayers’ blood relationship to father did not end on his death

Tax – Income tax – Administration and enforcement

Taxpayers’ father was annuitant of life income fund. After he died, taxpayers each received $96,640.96 as named beneficiaries of such fund. Minister assessed both taxpayers $96,640.96 on basis of s. 160(1) of Income Tax Act. Taxpayers appealed. Appeals dismissed. Taxpayers accepted that three criteria were met, in that father indirectly transferred property to them, that he was liable to pay income tax in relation to taxation year in which transfer took place or prior taxation year, and that no consideration was paid by taxpayers. Only issue was whether father and taxpayers were dealing with each other at arm’s length at time of transfer. In situation where person was named as beneficiary under income fund, transfer from person who held fund to such designated beneficiary occurred on death of person who held fund, so transfers occurred at time of father’s death as argued by Minister. Timing of transfers was not determinative, as key factor was that property was transferred from father to taxpayers. There was no ambiguity in s. 251(6)(a) of Act, pursuant to which parent and children were connected by blood relationship. Taxpayers’ blood relationship to father did not end on his death as they continued to be his children. While father’s transfer of property to taxpayers began before his death, crystallized on his death and was completed after his death, it remained transfer between persons connected by blood relationship and so deemed by Act not to deal with each other at arm’s length. Unlike in precedent finding that spousal relationship ceased on death, relationship between father and children was not statutory but factual relationship and so s. 160(1) of Act applied to each of transfers from father to taxpayers.

Dreger v. The Queen (2020), 2020 CarswellNat 318, 2020 TCC 25, Steven K. D'Arcy J. (T.C.C. [General Procedure]).

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