22 June 1995 External T.I. 9416655 - SINGLE PURPOSE CORP./RCT'S POSITION TO BE REPEALED?

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

In light of the revised Protocol amending the Canada-U.S. Income Tax Convention with respect to the U.S. estate tax problem, does the Department's administrative positions with respect to "single purpose corporations" still apply?

Position TAKEN:

The matter is currently under review by the Department and the results will be published in the Income Tax Technical News.

Reasons FOR POSITION TAKEN:

N/A

		941665
XXXXXXXXXX		Jim Wilson

Attention: XXXXXXXXXX

June 22, 1995

Dear Sirs:

Re: Single Purpose Corporation

We are writing in response to your letter of June 20, 1994 wherein you requested clarification of the Department's administrative policy regarding whether or not a corporation would qualify as a "single purpose corporation" for the purpose of holding personal-use real estate in the United States. For this purpose you had set out a particular hypothetical situation.

Over the years the Department has provided guidelines concerning the conditions which have to be met in order to qualify as a single purpose corporation. The Department's position as to the circumstances in which we will not seek to assert that a benefit under subsection 15(1) of the Act has been conferred on a shareholder of a corporation holding U.S. residential property is an administrative concession by the Department that was originally developed in response to U.S. estate tax legislation and was implemented with the sole objective of facilitating the holding of residential real property located in the United States by a Canadian corporation for the occupancy of the corporation's shareholders.

In light of the revised Protocol signed on March 17, 1995 amending the Canada-U.S. Income Tax Convention, the Department is reconsidering its administrative position with respect to single purpose corporations. For example, Article 19 of the Protocol (hereinafter referred to as "Article XXIX B of the treaty"), once it becomes law, will resolve many of the problems that confronted Canadian residents who owned or were contemplating the acquisition of personal use real property situated in the United States. Paragraphs 2, 3, 4 and 8 of Article XXIX B of the treaty will generally cause significant reductions to, or quite possibly in the majority of cases, complete exemption from, the U.S. estate tax otherwise exigible. Paragraph 6 of Article XXIX B of the treaty will require Canada to provide a foreign tax credit against Canadian taxes payable on U.S. source income with respect to U.S. estate taxes payable. Once ratified this provision will address the double taxation concern that has been in existence since 1972 when Canada abolished estate taxes (and introduced the deemed realization on death rules) and terminated the Canada-U.S. estate tax treaty.

Once the Department has completed its review of its administrative position with respect to single purpose corporations, we will publish the results in the Income Tax Technical News.

We apologize for the delay in replying.

Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch