10 May 1991 Ministerial Letter 901028 F - Shareholder Benefit and 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.

Dear Sirs:

Re:  Single Purpose Corporations

We are writing in response to your letters of May 28 and August 24, 1990 in which you requested clarification of the Department's administrative policy regarding "single purpose corporations" and shareholder benefits under subsection 15(1) of the Income Tax Act (the "Act").  We apologize for the delay in our reply.

The Department's position as to the circumstances in which we will not seek to assert that a subsection 15(1) benefit has been conferred on a shareholder of a corporation holding U.S. residential property is set out in the answers to Questions 20, 14 and 9 of the 1980, 1985 and 1989 Revenue Canada Round Table sessions, respectively.

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 be 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 of the Act).

You have expressed a concern that should a sale of the property ever be contemplated the corporation would no longer be considered a "single purpose corporation".

In our opinion, where a Canadian corporation sells the property, it would cease to qualify as a single purposes corporation

You have also asked for our opinion whether the temporary ownership of two personal-use properties would disqualify the corporation from being treated as a "single purpose corporation".

Where a corporation held more than one personal use property, even though all expenses for each property were paid by the shareholder and the money to purchase each property was advanced to the corporation by the shareholder, such a corporation would not be treated as a "single purpose corporation".

These comments are made subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990, and are not binding on the Department.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch