9 August 1989 Income Tax Severed Letter 58210 F - Transfers to M.N.R. - Genuine Loan

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.

August 9, 1989

Dear Sir:

Re:  Application of Subsection 75(2) and sections 74.1 and 74.2 of the Income Tax Act (the "Act")

This is in reply to your letter of June 6, 1989 further to our letter of January 11, 1989 concerning the above subject.

You have asked if our reply in that letter would remain unchanged if the circumstances and assumptions contained therein were altered to the extent that:

a.       the settlor(s) would be the grandparent (s) who would not be either trustees or beneficiaries and

b.        the parents would be the trustees.

With respect to the settlement made by a grandparent, it is our view that the provisions of subsection 74.1(2) of the Act would apply as previously advised. With respect to any loans made by the parents, it also remains our view that subsections 74.1(1) and (2) of the Act could apply subject to the provisions of 74.5(2) of the Act when it is determined, upon the basis of all relevant facts, that the loan is a genuine loan. Where the loan is not found to be genuine the provisions of subsections 74.1(1) and (2) of the Act could apply in respect of the proceeds of the loan.

Subsection 75(2) of the Act will not apply to attribute income from property acquired with the loan proceeds if the loan is a genuine loan and the property is not property which is held on conditions which would, on their own, cause the provisions of subsection 75(2) of the Act to apply. For example, should the loan proceeds be used to acquire a property from the parents, that property could be subject to the provisions of paragraph 75(2)(b) of the Act if the parents control the trust property as trustees or under terms of the loan.

While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate