A recent Tax Court of Canada ("TCC") decision in Brosamler Estate v. R.,1
released on June 12, 2012, considered the issue of whether certain
amounts so incurred could be added to the adjusted cost base
("ACB") of the capital property held by the taxpayer.
To the extent that the ACB could be increased then the resulting
taxable capital gain on a disposition would be lower or the capital
loss would be greater. Section 54 of the Income Tax Act
(the "Act") defines ACB, among other things, as
"...the cost to the taxpayer of the property adjusted, as
of that time, in accordance with section 53... ."
Basically, subsection 53(1) of the Act provides for specific
amounts that are added to the ACB of the property while subsection
53(2) of the Act provides for specific amounts that are deducted
from the ACB of the property.
In Brosamler, two taxpayers appealed to the TCC: Gunnar
Brosamler, deceased ("Brosamler") and the Estate of
Gunnar Brosamler (the "Estate"). The facts are briefly
Brosamler died in April 2008 and was a resident of Germany for
income tax purposes at the time of his death;
Brosamler owned three rental properties in Vancouver, BC
(commonly referred to as Taxable Canadian Property
As a result of the deemed disposition rules on
death,3 Brosamler was deemed to dispose of his TCP and
realized a capital gain of $6,379,3004 on his 2008
personal income tax return;
Brosamler's will was subject to probate in Germany;
The Estate wanted to sell two of the three properties for
liquidity purposes. However, the Estate could not dispose of the
properties to a third party unless conveyance from Brosamler to the
Estate was registered in compliance with the Land Title
Act (British Columbia) and this could only occur if the
probate was resealed in BC. Accordingly, probate and legal fees
were incurred and were proportionately added to the ACB of the
properties by the Executrix of the Estate ;
The Estate disposed of two of the three properties during the
first year following Brosamler's death, which resulted in the
realization of a capital loss;
The Executrix of the Estate elected to carry the capital loss
back5 to the final tax return of Brosamler reducing the
tax otherwise payable on the deemed disposition of TCP.
The appellants and the Canada Revenue Agency ("CRA")
agreed with all findings and transactions except for one
– the addition of the prorated probate and legal fees to
the ACB of the properties disposed by the Estate (which increased
the underlying capital loss).
The CRA argued "since the Estate had acquired an
interest in the properties under the Estate Administration Act
(British Columbia) that ancillary probate was not required in order
for the Estate to acquire an interest in the properties."
Accordingly, the CRA concluded that the additions to the Act of the
disposed properties were not appropriate.
However, the TCC concluded that the interest in properties that
were sold by the Estate "was an interest in the properties
that could be registered under the Land Title Act by the purchasers
of the properties and to acquire this interest in the properties
the Estate had to incur the probate fees and legal
Accordingly, the probate fees and legal fees were added to the
ACB of the properties on a proportionate basis which resulted in a
greater capital loss available for carryback by the Estate.
Of further interest is the TCC's comment that "if
the amount for probate fee and legal fees is not added to the
adjusted cost base of the properties, these fees were outlays or
expenses incurred for the purpose of making the dispositions of the
properties. As a result such amounts would be deductible in
determining the capital losses realized by the Estate on the
disposition of such properties."6
While the outcome of Brosamler was clearly a win for
the appellants, the decision has no direct precedential value as it
was determined under the Informal Procedure of the Tax Court as
opposed to General Procedure.
Nevertheless, this is an interesting conclusion and
interpretation of subsection 53(1) of the Income Tax
1. Estate of the Late Gunnar Brosamler v. HMQ, 2012 TCC 204
(Tax Court of Canada [Informal Procedure]).
2. As defined in subsection 248(1) of the Act.
3. Pursuant to subsection 70(5) of the Act.
4. Deemed proceeds of disposition were $6,750,000 aggregate
ACB of $370,700.
5. Pursuant to subsection 164(6) of the Act.
6. Pursuant to paragraph 40(1)(a) of the Act.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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