20 September 1990 Administrative Letter 901296 F - Corporate-owned Personal-use Real Estate

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 Sir:

Re:   Corporate-owned personal-use real estate Subsection 15(1) of the Income Tax Act (Canada) (the "Act") Request for Technical Interpretation

We are writing in reply to your letter, dated June 15, 1990, in which you requested our response to certain questions relating to our position that no benefit will be assessed under subsection 15(1) of the Act in respect of U.S. vacation property held by a corporation (a "single-purpose corporation") for the use of its shareholder provided that certain criteria (set out below) are satisfied.

Restatement of our administrative position

It is our view that, for the purposes of subsection 15(1) of the Act, a benefit is conferred by a corporation upon its shareholder where a property of the corporation is held solely for the personal use of the shareholder.

Our position, in respect of single-purpose corporations referred to above, is an administrative exception to the application of subsection 15(1) of the Act that was first pronounced in response to Question 20 of the 1980 Round Table and subsequently elaborated upon in response to Question 14 of the 1985 Round Table and Question 9 of the 1989 Round Table.  The six conditions, all of which must be satisfied in order for the exception to apply, are restated as follows:

1.     the corporation's only objective is the holding of property for the personal use of 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 is charged with all the operating expenses by the corporation, with the result that the corporation shows no profit or loss with respect to the property on any of its returns;

5.     the corporation acquires 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; and

6.     the property is acquired by the corporation on a fully taxable basis, i.e. without the use of any of the rollover provisions in the Act.

Your questions:

You have asked:

(a)     whether the Department's administrative position extends to the ownership by a single-purpose corporation of personal-use Canadian real estate;

(b)     whether there is a technical basis for not permitting subsection 85(1) to be used by a single-purpose corporation upon its acquisition of the personal-use property; and

(c)     what the assessing policy of the Department would be if all of the six conditions were met except that the shareholder and the corporation jointly elected under subsection 85(1) of the Act to transfer the property at the shareholder's cost thereof.

Our response:

Our administrative position was developed in response to U.S.estate tax legislation and was implemented with the sole 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 shareholders.  There is no intention to expand or alter this administrative concession to include any other types of property.  Our administrative position, therefore, does not extend to Canadian real estate.

In response to your second and third questions, subsection 85(1) may be used by a Canadian resident to transfer U.S. real property that is capital property to a taxable Canadian corporation.   However, if the personal-use property is transferred to the corporation on a tax-deferred basis, not all of the six requirements for eligibility for the administrative relief from the application of subsection 15(1) will have been satisfied.  The value of the benefit to the shareholder will therefore be included under subsection 15(1) of the Act in computing the income of the shareholder.

The above comments are provided in accordance with the practice referred to in paragraph 24 of Information Circular 70-6R issued by Revenue Canada, Taxation dated December 18, 1978.

Yours truly,

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