1 December 1999 External T.I. 9833545 - TRANSFER OR LOAN OF PROPERTY

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: Application of the attribution rules - subsection 74.4(2).

Position: Unable to provide much in the way of meaningful comment.

Reasons: Question of fact.

XXXXXXXXXX 		983354

Attention: XXXXXXXXXX

December 1, 1999

Dear Sir:

Re: Transfer or Loan of Property

This is in reply to your letter of December 17, 1998, wherein you requested our views on whether an individual has loaned or transferred property to a corporation for the purposes of subsection 74.4(2) of the Income Tax Act (the "Act").

In your letter you describe a situation whereby an individual acquired an interest bearing demand note receivable from the estate of the individual's mother as a consequence of her death. You advise that the note receivable was issued as consideration for the mother's sale of US securities owned by her to a Canadian corporation owned by the individual's spouse and minor children and that this sale took place at fair market value. You indicate that since the note was interest bearing (at prescribed rates) was always paid by the corporation regularly there was never any deemed interest benefit to the mother under subsection 74.4(2) of the Act.

You advise that the taxpayer wishes to eliminate the requirement of the corporation to pay interest on the note and ask whether we concur with your view that such a change in the terms of the note would not represent a transfer of property to the corporation.

Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 (IC-70-6R3) dated December 30, 1996. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's ("CCRA") views must be made to your local Tax Services Office. Although we are not able to comment specifically on the situation described in your letter we can offer the following general comments.

Ordinarily a mere change in the terms of an existing debt obligation, without additional funds being advanced, will not result in a transfer or loan of property by the creditor to the debtor. This will normally be the case whether or not the change to the terms of a particular debt obligation are so significant that it results in a disposition of the original debt obligation by the creditor. In this regard we would like to point out that the position in paragraph 7 of IT-448 on this matter has recently been revised. Our new position can be found in Income Tax Technical News #14 dated December 9, 1998.

We would also like to point out that without a complete understanding of all the facts of a particular situation, that can only take place as described above, we are unable to confirm whether or not the attribution rules described in section 74.4 of the Act apply, or whether the other attribution rules of the Act may apply. As part of this process we would also consider whether the attribution rules, if initially found to be inapplicable, are being circumvented in a manner that would cause us to consider the application of the general anti-avoidance rule in subsection 245(2) of the Act.

While we hope that our comments are of assistance to you, as indicated in paragraph 22 of IC-70-6R3, this opinion is not a ruling and accordingly, it is not binding on the CCRA.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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