Income Tax Act

Marginal note:Reserves, etc., for year of death

• 72 (1) Where in a taxation year a taxpayer has died,

  • (a) paragraph 20(1)(n) does not apply to allow, in computing the income of the taxpayer for the year from a business, the deduction of any amount as a reserve in respect of property sold in the course of the business;

  • (b) no amount is deductible under subsection 32(1) as a reserve in respect of unearned commissions in computing the taxpayer’s income for the year;

  • (c) no amount may be claimed under subparagraph 40(1)(a)(iii), paragraph 40(1.01)(c) or subparagraph 44(1)(e)(iii) in computing any gain of the taxpayer for the year;

  • (d) subsection 64(1) does not apply to allow, in computing the income of the taxpayer for the year, the deduction of any amount as a reserve in respect of the disposition of any property; and

  • (e) subsection 64(1.1) does not apply to allow, in computing the income of the taxpayer for the year, the deduction of any amount as a reserve in respect of the disposition of any property.

• Marginal note:Election by legal representative and transferee re reserves

  (2) Where property of a taxpayer that is a right to receive any amount has, on or after the death of the taxpayer and as a consequence thereof, been transferred or distributed to the taxpayer’s spouse or common-law partner described in paragraph 70(6)(a) or to a trust described in paragraph 70(6)(b) (in this subsection referred to as the “transferee”), if the taxpayer was resident in Canada immediately before the taxpayer’s death and the taxpayer’s legal representative and the transferee have executed jointly an election in respect of the property in prescribed form,

  • (a) any amount in respect of the property that would, but for paragraph 72(1)(a), (b), (d) or (e), as the case may be, have been deductible as a reserve in computing the taxpayer’s income for the taxation year in which the taxpayer died shall,

    • (i) notwithstanding subsection 72(1), be deducted in computing the taxpayer’s income for the taxation year in which the taxpayer died,

    • (ii) be included in computing the transferee’s income for the transferee’s first taxation year ending after the death of the taxpayer, and

    • (iii) be deemed to be

      • (A) an amount that has been included in computing the transferee’s income from a business for a previous year in respect of property sold in the course of the business,

      • (B) an amount that has been included in computing the transferee’s income for a previous year as a commission in respect of an insurance contract, other than a life insurance contract,

      • (C) an amount that by virtue of subsection 59(1) has been included in computing the transferee’s income for a preceding taxation year, or

      • (D) for the purposes of subsection 64(1.1), an amount that by virtue of paragraph 59(3.2)(c) has been included in computing the transferee’s income for a preceding taxation year and to be an amount deducted by the transferee pursuant to paragraph 64(1.1)(a) in computing the transferee’s income for the transferee’s last taxation year ending before the death,

      as the case may be;

  • (b) any amount in respect of the property that could, but for paragraph 72(1)(c), have been claimed under subparagraph 40(1)(a)(iii) or 44(1)(e)(iii) in computing the amount of any gain of the taxpayer for the year shall,

    • (i) notwithstanding paragraph 72(1)(c), be deemed to have been so claimed, and

    • (ii) for the purpose of computing the transferee’s income for the transferee’s first taxation year ending after the death of the taxpayer and any subsequent taxation year, be deemed to have been

      • (A) proceeds of the disposition of capital property disposed of by the transferee in that first taxation year, and

      • (B) the amount determined under subparagraph 40(1)(a)(i) or 44(1)(e)(i), as the case may be, in respect of the capital property referred to in clause (A); and

  • (c) notwithstanding paragraphs 72(2)(a) (b), where any property had been disposed of by the taxpayer, in computing the income of the transferee for any taxation year ending after the death of the taxpayer,

    • (i) the amount of the transferee’s deduction under paragraph 20(1)(n) as a reserve in respect of the property sold in the course of business,

    • (ii) the amount of the transferee’s claim under subparagraph 40(1)(a)(iii) or 44(1)(e)(iii) in respect of the disposition of the property, and

    • (iii) the amount of the transferee’s deduction under section 64 as a reserve in respect of the disposition of the property

    shall be computed as if the transferee were the taxpayer who had disposed of the property and as if the property were disposed of by the transferee at the time it was disposed of by the taxpayer.