2001 Ruling 2001-0097083 - REFINANCING OF REAL ESTATE PENSION CORP.

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 CCRA.

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

Principal Issues: Will the refinancing of money borrowed for the purpose of earning income from real property meet the requirements of paragraph 149(1)(o.2)?

Position: Yes

Reasons: Provided that the original borrowed amount met the requirements of paragraph 149(1)(o.2), we will consider that a refinancing of the borrowed amount will not, in and of itself, cause the corporation to lose its tax-exempt status under 149(1)(o.2).

XXXXXXXXXX 		2001-009708

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, and subsequent documents, in which you ask for an advance income tax ruling on behalf of the above taxpayer.

DEFINITIONS

For the purpose of this ruling request, the following terms have the meanings specified:

(a) "Aco" means XXXXXXXXXX. Aco operates at arm's length with Bco for purposes of the Act;

(b) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1. as amended to the date hereof;

(c) "Bco" means XXXXXXXXXX;

(d) "Direct Parent" means XXXXXXXXXX;

(e) "Indirect Parent" means XXXXXXXXXX;

(f) "Lender" means a Canadian financial institution that operates at arm's length with both Aco and Bco for purposes of the Act;

(g) XXXXXXXXXX.

FACTS

Our understanding of the facts and the proposed transaction is as follows:

1. Bco is incorporated under the laws of XXXXXXXXXX, and is a real estate pension corporation generally exempt from tax under Part I of the Act, by virtue of paragraph 149(1)(o.2) of the Act. The head office and mailing address of Bco is:

XXXXXXXXXX.

Bco's business number is XXXXXXXXXX. It files its tax returns at the XXXXXXXXXX Tax Centre, and is served by the XXXXXXXXXX Tax Services Office. All of the shares of Bco are held by the Direct Parent, all of the shares of which are held by the Indirect Parent.

2. Bco has acquired, or has agreed to acquire, XXXXXXXXXX real estate properties in the Province of XXXXXXXXXX to be used as XXXXXXXXXX.

3. Once completed, Bco will lease the properties to Aco to be used as XXXXXXXXXX for a period of XXXXXXXXXX years. XXXXXXXXXX.

4. Bco has borrowed funds from the Indirect Parent to finance some of the costs of the acquisition and development of the properties as set out in 2 above.

PROPOSED TRANSACTIONS

5. Bco will enter into an agreement with the Lender to borrow up to $XXXXXXXXXX from the Lender to be used as described in 6 below.

6. The borrowed funds will be used to repay the amounts borrowed from the Indirect Parent as described in 4 above, and to complete the acquisition from Aco of the XXXXXXXXXX properties and the development by Aco of the XXXXXXXXXX properties as described in 2 above.

7. XXXXXXXXXX.

PURPOSE OF THE PROPOSED TRANSACTIONS

8. The purpose of the proposed transactions is to provide Bco with the financing required to fund the acquisition and development of the properties as described in 2 above in order to permit Bco to earn income from the leases to Aco as described in 3 above.

OTHER INFORMATION

9. To the best of your knowledge and that of Bco, none of the issues involved in this ruling request are:

a) in an earlier return of Bco or a related person,

b) being considered by any tax services office or tax center in connection with a previously filed tax return of Bco or a related person,

c) the subject matter of any notice of objection filed pursuant to the Act by Bco or a related person,

d) before the courts, nor

e) the subject of a ruling previously issued by this Directorate.

RULING GIVEN

Provided that the above statement of facts and description of the proposed transactions are accurate and constitute a complete disclosure of all relevant facts and terms of the proposed transaction, we rule that the borrowing from the Lender as described in 5 above will not, in and of itself, cause Bco to fail to comply with clause 149(1)(o.2)(ii)(C) of the Act.

The above advance income tax ruling, which is based on the Act in its present form and does not take into account any proposed amendment thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R4 Advance Income Tax Rulings, dated January 29, 2001, and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions as set out in 5 and 7 above are completed by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate