All About Estates

Unborn children and the 24 month capital gain exemption test

In Pellerin (2015 TCC 130) the Tax Court of Canada was asked to determine whether shares sold by a child before his 18th birthday qualified for the capital gains exemption. Taxpayer wins – the Tax Court took the view that the clock starts at the time of conception and had some interesting comments in their decision.

One of the tests to be satisfied for one to access their capital capital gains exemption is the holding period test. To meet this test the shareholder (or a related person or partnership) must own the shares for two years.

In Pellerin, shares of a company were held by a trust that was settled in January 2005 for the benefit of the children and the grandchildren of the patriarch. The child was born in March 2007 (it was agreed that he was conceived around June 2006). In October and November 2008, the child received as capital distributions from the trust shares of two corporations. The shares were promptly sold, a capital gain generated and the capital gains exemption claimed in the child’s 2008 tax return.

The Minister reassessed the child’s tax return disallowing the capital gains exemption because the child did not meet the 24-month holding requirement as he was not even two years old when the shares were sold. In the Minister’s view, the child could only become a beneficiary at birth. Not so said the Tax Court – the 24 month test was satisfied given that the child and the trust were the only owners of the shares during the 24 month period and the trust and child were related throughout that period since the child was an actual beneficiary from birth and was deemed a beneficiary since his conception.

Timing is everything (well most of the time).

About Derek de Gannes
Derek A. de Gannes: Senior Director, Private Client Services of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: