20 February 1990 Income Tax Severed Letter 59486A F - Special Purpose Corporation - Acquisition of a Boat

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.

February 20, 1990

Dear Sirs:

Re: Special Purpose Corporation - Acquisition of a Boat

We are writing in response to your letters of December 11, 1989 and January 19, 1990, regarding the above-noted subject, which were forwarded to this Directorate by the District Taxation Office in Vancouver for reply.

We have reviewed your letters as well as the District Taxation Office in Vancouver's reply to your requests.  The facts of the particular case, as presented therein, remain unchanged and are therefore not restated in our reply.

Comments

It is important to mention at the outset that the Department has always considered that a benefit has been conferred where a corporate property is held solely for the personal use of the shareholder whether or not the shareholder has advanced the purchase price to the corporation.  The extent to which the shareholder has paid related operating expenses may be relevant in determining the total value of the benefit but not whether there is a benefit.

The taxable benefit to be included in income, pursuant to the provisions of subsection 15(1) of the Income Tax Act (Canada) (the "Act"), will, in most cases, be calculated using the fair market rental value approach.

However, the Department has, as you correctly indicated in your letter of January 19, 1990, permitted one exception to its above outlined interpretation as a result of certain measures imposed on Canadian residents under U.S. estate tax legislation.  In order to qualify for this exception, six conditions; four of which were set out in answer to question 20 and one each in the answers to questions 14 and 9 of the 1980, 1985 and 1989 Revenue Canada Round Table sessions respectively, must be met.  This exception is an administrative concession by the Department and will not be available unless all of the six conditions set out by the Department, as restated hereunder, are satisfied.

1)     The corporation's only objective is the holding of property for the personal use or enjoyment of the shareholder.

2)     The shares of the corporation are held by an individual or person (other than a corporation) related to the individual.

3)     The only transactions of the corporation relate to its objective of holding property for the personal use or enjoyment of the shareholder.

4)     The shareholder would be charged with all the operating expenses by the corporation, with the result that the corporation would show no profit or loss with respect to the property on any of its returns.

5)     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.

6)     The property must be acquired by the corporation on a fully  taxable basis (that is, without the use of any of the rollover provisions in the Act).

As briefly mentioned earlier, this administrative concession arose as a result of U.S. estate tax legislation and was implemented with the single objective of facilitating the holding of residential real property located in the United States by a Canadian corporation for the occupancy of the corporation's shareholder.

The Department is not prepared to expand or alter this administrative concession to any transaction or structure that does not satisfy all of the six conditions, as outlined earlier, or to include any other types of property.  Furthermore, we are not aware of any situation, where this administrative concession has been extended to property other than residential real estate.

As your situation does not involve the holding of residential real property located in the United States by a Canadian corporation, it is our view that the proposed transaction will result in a taxable benefit to the shareholder as it does not qualify for the administrative relief outlined above.

We trust our comments will be of assistance.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch