7 July 2011 External T.I. 2010-0386871E5 - single-purpose corporations

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: Whether the grandfathering rules as outlined in ITTN #31R could be extended to include the transfer of the shares of a single purpose corporation between spouses as a result of a divorce or a breakdown of the marriage.

Position: No.

Reasons: The CRA is not prepared to extend the scope of the grandfathering rules.

XXXXXXXXXX 							Katie Campbell
								(613) 957-2126
								2010-038687
July 7, 2011

Dear XXXXXXXXXX :

We are writing in response to your correspondence of November 12, 2010 where you requested a technical interpretation regarding our assessing practice concerning single-purpose corporations, as outlined in Income Tax Technical News no. 31R (the "ITTN").

As outlined in the ITTN, effective after December 31, 2004, the CRA's administrative practice not to assess a taxable benefit under subsection 15(1) of the Act (footnote 1) , where the taxpayer is the shareholder of a single-purpose corporation that has been established to hold US based real property, will no longer apply where, inter alia, a person acquires shares of single-purpose corporation. However, where the shares of the single purpose corporation are acquired on the death of the individual's spouse or common law partner, the administrative practice not to assess a taxable benefit under subsection 15(1) will continue (the "grandfathering rule"). You have asked whether the grandfathering rule could be extended to cover the situation where there is a transfer of the shares of a single-purpose corporation between spouses, or between former spouses, as a consequence of a breakdown of their marriage.

Your request appears to relate to 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 70-6R5 ("IC-70-6R5") dated May 17, 2002. However, if the situation relates to a completed transaction a request for the Canada Revenue Agency's ("CRA's") views must be made to your local Tax Services Office. We can, however, provide the following general comments.

As stated in the ITTN, the administrative position not to assess a subsection 15(1) benefit will no longer apply for, inter alia, any person who acquires shares of a single-purpose corporation unless the grandfathering rule applies. The grandfathering rule does not cover the transfer of the shares of a single purpose corporation between spouses as a consequence of a breakdown of their marriage. The CRA is not prepared to extend the scope of the application of the grandfathering rule.

Our comments are provided in accordance with the practice outlined in paragraph 22 of IC 70-6R5, dated May 17, 2002.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Income Tax Rulings Directorate

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 The Act means the Income Tax Act R.S.C. 1985 (5th Supp.) c.1 as amended from time to time and consolidated to the date of this letter and, unless otherwise expressly stated, every statutory reference herein is a reference to the relevant provision of the Act.