23 February 1989 Income Tax Severed Letter 5-7185 -  

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.

J.D. Jones (613) 957-2104

FEB 23 1989

Dear Sirs

Re: Ruling Request Subsection 245(3) of the Income Tax Act (the "Act")

This is in reply to your letter dated December 1, 1988, wherein you requested an advance income tax ruling with respect to the above referenced matter.

We are unable to provide the requested ruling as advance income tax rulings are given only in respect of identified taxpayers and only when presented in the format set out in Information Circular IC 70-6R.

We wish to point out that the fee for this service has changed; charges are at the rate of $65 per hour with a deposit of $325 to accompany the original request.

The situation as described in your letter may be summarized as follows:

Mr. X, a resident of Canada, is the sole shareholder, director and president of company Y. a Canadian-controlled private corporation (CCPC) incorporated under the laws of a province in Canada and earning active business income. Company Y acquired all of the shares in Company Z which is a CCPC earning active business income and which is located in another province of Canada. Company Y will be registered in the province where company Z is located, its head office will be located in that province and its business operations will be conducted in that province. Mr. X is contemplating moving from his present province of residence to the province where company Z is located, a distance of approximately 1,200 miles. Based upon the current real estate market conditions, the sale of Mr. X's principal residence (in his present province of residence) will result in a loss. The sale will be made to an arm's length third party and the estimated net proceeds from the sale will be less than the original cost of the residence to Mr. X (the property was acquired after 1971). Company Y will reimburse Mr. X for the loss incurred on the-sale of his principal residence upon his move to his new province of residence.

Based upon the above, it is your view that the reimbursement by company Y to Mr. X would represent a "moving expense" relative to an employee of the company, and as such would be deductible from income of the company pursuant to paragraph 18(1)(a) of the Act. In addition, the receipt by Mr. X of the reimbursement of the loss as a result of the sale of his principal residence would not be regarded as a "taxable benefit" in his hands based upon paragraph 37 of IT-47 OR.

You have requested our opinion as to whether or not the reimbursement by Company Y to Mr. X would be considered an "avoidance transaction" within the meaning of subsection 245(3) of the Act.

We would comment at the outset that the capacity in which an individual receives a benefit is a question of fact which can only be determined on a case-by-case basis in light of all of the surrounding facts and circumstances. If Mr. X received the reimbursement in his capacity as a shareholder, then section 15 of the Act may have application. On the other hand, if Mr. X received the reimbursement in his capacity as an employee, then the comments in paragraph 37 of IT-470R may be applicable.

We would point out that paragraph 1 of IT-470R states, in part, "The information herein refers to cases where there is an employee-employer relationship but does not necessarily apply if the employee is also a shareholder ...".

With respect to the application of section 245 of the Act, since it would be a question of fact as to what the main purpose of the transfer was and this could only be determined with full knowledge of all the particulars of the situation, we are unable to provide an opinion as requested.

We regret we arc unable to give a definitive reply.

Yours truly,

ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR

P.D. FUOCO

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch