27 November 1990 Internal T.I. 901777 F - Prescribed Benefits in respect of Tax Shelters

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.

SUBJECT:  Prescribed Benefits in respect of Tax Shelters

This is in reply to your memorandum of August 1, 1990 in which you requested our view as to whether Alberta Royalty Tax Credits ("ARTC"s) constitute "a form of assistance from a government" as referred to in subparagraph 231(6)(b)(i) of the Income Tax Regulations and a "prescribed benefit" as described in subsection 231(6) of the Regulations. Your query stems from an enquiry directed to you by the representatives of 24(1). The representative indicated that the effect of viewing the ARTCs as a prescribed benefit would be to cause 24(1) to be a tax shelter within the meaning of subsection 237.1(1) of the Income Tax Act.

The representative is seeking confirmation from you that the limited partnership in question is not a tax shelter. Not having been requested by you to consider the overall issue, we have limited our review to that of the effect of the ARTC. However, we would like to state our observation that the representative has not demonstrated that the partnership would not be a tax shelter if there were no ARTC.

We note that the definition of a tax shelter in subsection 237.1(1) of the Act refers to property in respect of which a purchaser can anticipate that the aggregate of deductible amounts in respect of the property will exceed the taxpayer's net cost of the property, where net cost is the amount by which his cost of the property will exceed the amount of any prescribed benefit which he can anticipate receiving. Unlike the determination of the amount which a partner has at risk pursuant to the reduction provided by paragraph 96(2.2)(d) of the Act which refers to revenue guarantees, etc. granted for the purpose of reducing the impact of any loss, subsection 231(6) of the Regulations refers to amounts which would have the effect of reducing the impact of any loss. As an aside, we note that the representative is relying on the words stated in the draft Regulation, which referred to "purpose" rather than "effect", and he does not discuss the actual Regulation. Indeed, probably most forms of assistance from governments are granted for the purpose of encouraging certain activity or investment rather than for the purpose of reducing the impact of someone's loss. However, the closing words of the preamble of subsection 231(6) of the Regulations state that prescribed benefit "includes any such amount" that the purchaser will be entitled to receive as a form of assistance from a government. Thus, for government assistance to be a prescribed benefit, it will suffice that representations are made to a purchaser that he can anticipate receiving such assistance.

It is clear that the payment of the Alberta Royalty Tax Credit by the province of Alberta would be viewed as a form of assistance from a government, and we note that the representative concurs with this view. It is also our view that the ARTCs are a prescribed benefit for purposes of subsection 237.1(1) of the Act.

Please find attached the prospectus and information memorandum which you submitted with your enquiry.

B.W. DathDirectorRulings DirectorateLegislative and Intergovernmental Affairs Branch