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: Subdividing, then partitioning land and three buildings, with some former co-owners remaining co-owners of part of the property after the partition.
Position: Ruling issued.
Reasons: Satisfied all statutory and administrative requirements.
XXXXXXXXXX 2011-040878
XXXXXXXXXX
XXXXXXXXXX , 2012
Dear Sir:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX , in which you requested an Advance Income Tax Ruling on behalf of the above-named taxpayers. We also acknowledge the receipt of additional information provided during our telephone conversations (XXXXXXXXXX ) and other correspondence submitted subsequent to your letter of XXXXXXXXXX . Any information you submitted in respect of your request are part of this letter only to the extent described herein.
We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues contained in this ruling request herein are:
(i) dealt with in an earlier return of the taxpayers or a related person;
(ii) being considered by a tax services office or taxation centre of the Canada Revenue Agency ("CRA") in connection with a previously filed tax return of the taxpayers or a related person;
(iii) under objection or appeal by the taxpayers or a related person;
(iv) the subject of a ruling previously issued by the Income Tax Rulings Directorate to the taxpayers or a related person; nor
(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired.
Unless otherwise noted, all references herein to a currency are a reference to Canadian dollars. The "Act" means the Income Tax Act, R.S.C. 1985, c.1, (5th Suppl.), as amended to the date hereof, and unless otherwise stated, a reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act.
FACTS
1. The property that is the subject of this advance income tax ruling request (hereinafter referred to as the "Project") consists of XXXXXXXXXX. The Project is contained under XXXXXXXXXX located in the XXXXXXXXXX legally described as XXXXXXXXXX.
2. XXXXXXXXXX ("ABC Co.") holds the legal title to the Project as bare trustee. The bare trust agreement is not registered. XXXXXXXXXX ("Holdings Co.") owns XXXXXXXXXX % of the shares of ABC Co. while the remaining shares (XXXXXXXXXX %) are owned by XXXXXXXXXX other owners, including XXXXXXXXXX (the XXXXXXXXXX other owners hereinafter are referred to as the "Other Owners"). The beneficial owners of the Project are Holdings Co. (XXXXXXXXXX %) and the Other Owners (XXXXXXXXXX %) and are collectively referred to as the "Owners".
3. Each of the Owners holds an undivided interest in the Project. Specifically, Holdings Co. holds a XXXXXXXXXX % undivided interest in the Project while the Other Owners collectively hold a XXXXXXXXXX % undivided interest in the Project. Each of the Owners acquired its undivided interest in the Project for the purpose of earning rental income and as such each holds its respective interest in the Project as capital property.
4. Based on an appraisal report dated XXXXXXXXXX , that was prepared by XXXXXXXXXX (an arm's length appraisal firm), the fair market value ("FMV") of the Project was determined to be $XXXXXXXXXX .
PROPOSED TRANSACTIONS
5. Under the laws of the Province of XXXXXXXXXX , the Project will be subdivided into two new separate parcels as follows:
(a) Property 1 and Property 2 (representing XXXXXXXXXX % of the FMV of the Project at that time) under one new title; and
(b) Property 3 (representing XXXXXXXXXX % of the FMV of the Project at that time) under a separate new title.
6. The owners expect to have municipal approval to subdivide the Project by XXXXXXXXXX . Under the laws of the Province of XXXXXXXXXX , the Project would have to be subdivided before it could be partitioned as co-owners cannot legally partition a single property among themselves before first subdividing that property. Despite the subdivision, Holdings Co. and the Other Owners do not have the intention of converting the Project from a capital property into inventory.
7. Following the subdivision of the Project described in Paragraph 5, the Project will be partitioned resulting in change in the beneficial ownership in the Project such that:
(a) Property 1 and Property 2 will be co-owned by the Other Owners; and
(b) Property 3 will be solely owned by Holdings Co.
The FMV, immediately after the partition, of each of the new interests acquired by each of the Other Owners in Property 1 and Property 2 will be equal to the FMV, immediately before the partition, of each of the Owners' previous undivided interest in the Project. Similarily, the FMV, immediately after the partition, of the new interest acquired by Holdings Co. in Property 3 will be equal to the FMV, immediately before the partition, of Holdings Co.'s previous undivided interest in the Project. There will be no cash payments among the Owners and no debt assumptions or other FMV equalization mechanisms other than described herein.
8. The existing bare trust agreement will be modified to reflect the change in beneficial ownership described in Paragraph 7.
9. Legal title but not beneficial ownership of Property 3 will be transferred to NewCo as bare trustee on behalf of Holdings Co. At or around the same time, Holdings Co. will also transfer all of its shares in ABC Co. to the Other Owners at FMV, which the Owners believe will be nominal.
PURPOSES OF THE PROPOSED TRANSACTIONS
10. The purpose of the proposed transactions is for Holdings Co. to own Property 3 having a FMV representing XXXXXXXXXX % of the total FMV of the Project, and for the Other Owners to jointly own Property 1 and Property 2, having a FMV representing XXXXXXXXXX % of the total FMV of the Project.
11. Sole ownership of Property 3 by Holdings Co. will allow it to pledge such property as security for Holdings Co.'s borrowing without the consent of the Other Owners.
12. After all of the proposed transactions are completed, there should be no need for Holdings Co. or the Other Owners to have any further business dealings.
RULING GIVEN
Provided that the preceding statements constitute complete and accurate disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we rule as follows:
A. Subsection 248(21) will apply to the partition of the Project as described in Paragraph 7.
The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the proposed transactions are completed by XXXXXXXXXX .
This letter is based solely on the facts and proposed transactions described above. Further, nothing in this letter should be construed as implying that the CRA has confirmed, agreed to, reviewed or made any determination in respect of:
(a) the FMV or adjusted cost base of any property referred to herein;
(b) any tax consequences relating to the facts and proposed transactions or any transaction or event taking place either prior or subsequent to the implementation of the proposed transactions, whether described in this letter or not, other than those specifically described in the ruling given above.
Yours truly,
XXXXXXXXXX
for Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2011
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2011
Email this Content