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.
APR 17 1989 S.J. Tevlin (613) 957-2118
Dear Sirs:
Re: Subsection 56(4.1) of the Income Tax Act (the "Act")
This is in response to your letter of March 17, 1989, wherein you requested a technical interpretation with respect to the applicability of subsection 56(4.1) in the following hypothetical situation.
1. A farm property has fair market value of $900,000 and an adjusted cost base of $350,000.
2. The farm property is transferred pursuant to subsection 73(3) of the Act from father to child at a value of $600,000.
3. As consideration for the transfer, the father takes back a non-interest bearing promissory note for $600,000. The note is to be amortized over 30 years.
4. It is possible that no payments will be required to be made on the note. until the maturity date.
Your concern is whether subsection 56(4.1) will apply to the above situation.
It is a question of fact whether one of the main purposes for the loan was to reduce or avoid tax. Consequently, all the facts in the circumstances of a particular situation have to be examined before such a determination can be made.
We should also mention that the fair market value of the note may be less than $600,000 if it is non-interest bearing and may not be paid for 30 years.
As explained in paragraph 24 of Information Circular 70-6R, any written or verbal opinions are not rulings and are not binding upon Revenue Canada, Taxation in respect of any taxpayers.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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