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.
Principal Issues: Request for comments regarding ownership of real property where the property is registered in the name of a parent for financing purposes only.
Position: Ownership of the property is a question of fact. Concepts of legal ownership and beneficial ownership discussed.
Reasons: Comments consistent with CRA's interpretation bulletins and previous opinions.
XXXXXXXXXX 2007-025699
James Atkinson CGA
December 6, 2007 (519) 457-4832
Dear XXXXXXXXXX:
Re: Beneficial Ownership of Property
This is in response to your letter of August 24, 2007, concerning ownership of real property. This is also further to our recent telephone discussion (Atkinson/XXXXXXXXXX) of the matter and your request at that time for a written reply.
You described a situation where a property was acquired by, and registered in the name of, a parent, on behalf of an adult child, due to the inability of the adult child to obtain financing in order to purchase the property. The adult child paid the down payment at the time of acquisition, has since resided at the property and continues to pay the mortgage in respect of that property. Subsequently, the parent has passed away. You inquired as to the Canada Revenue Agency's views in respect of ownership of the property.
The particular situation outlined in your letter appears to be a factual one, involving specific taxpayers and completed transactions. Accordingly, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we offer the following general comments, which we trust will be of assistance.
The Income Tax Act (Act) does not define the term "owned". In the common law jurisdictions, two forms of property ownership are recognized - legal and beneficial. Normally "legal ownership" exists when title is transferred to, recorded in, registered in or otherwise carried in the name of a person. Legal owners are generally entitled to enforce their ownership rights against all other persons. By contrast, the term "beneficial ownership" is used to describe the type of ownership of a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. The determination of whether a person beneficially owns a property is a question of fact that can only be determined after a review of all the documents and the circumstances applicable to a particular situation.
The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership in a property, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations. Useful comments relating to the concepts of "beneficial ownership" and "legal ownership" can be found in Interpretation Bulletins IT-437R, Ownership of Property (Principal Residence) and IT-170R, Sale of Property - When Included in Income Computation. These publications are available on the Canada Revenue Agency's website at www.cra.gc.ca.
Generally, capital property of a taxpayer is considered, pursuant to subsection 70(5) of the Act, to have been disposed of for its fair market value immediately before the taxpayer's death and the person who as a consequence of the taxpayer's death acquires the property of the deceased will acquire it at that fair market value. However, if the taxpayer's name were on title simply as guarantor of the mortgage, the taxpayer would likely not have beneficial ownership of the property. Accordingly, if the taxpayer does not have beneficial ownership of the property, the deemed disposition under subsection 70(5) would not be applicable in respect of that property at the taxpayer's death.
We trust that these comments will be of assistance.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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