23 April 1990 Ruling 59481 F - 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.

April 23, 1990

We are writing in reply to your letter of January 23, 1990, wherein you requested our views regarding Single Purpose Corporations ("SPC") with respect to the four conditions set out in the Department's response to Question 20 of the 1980 Canadian Tax Foundation Round Table.

Our Comments

The Department's view, with respect to the administrative position, is that no benefit would normally be assessed to a shareholder where all four conditions are fulfilled.

Subsequently, a fifth condition was added as follows:

     "The corporation acquired the property with funds provided solely by the shareholder and not by virtue of his holdings or that of a related person in any other corporation."

With respect to the specific questions posed in your letter our comments are as follows:

1.     As stated above, the SPC's purchase of the property must be with funds provided solely by the shareholder.  As a result, the purchasing corporation could not, in our view, be a previously funded investment corporation as suggested in your letter. Similarly, the SPC could not be funded by intercorporate dividends.

2.     It is our opinion that in inter vivos trust is not an "individual or an individual and persons...related to the individual".  As a result, the holding of shares in a discretionary trust would not meet this basic requirement.

3.     The payment of rent, on a cost recovery basis or otherwise, would indicate that the corporation is not an SPC in that there are other purposes for its existence. In addition, the receipt of such rent would indicate that the shareholder would not be charged with all the operating expenses as required by condition number 4, an item not mentioned in your letter.  A taxable benefit would, therefore, be imputed in these circumstances.

In conclusion, we are not prepared to extend this administrative position to the situations described in your letter.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch