22 January 1991 Administrative Letter 903576 F - Shareholder Benefit - Single Purpose Corporation

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 Corporation

This is in reply to your letter of December 5, 1990 concerning the Department's position with respect to "single purpose corporations" (SPC).  You refer to the conditions previously stated by the Department for a corporation holding U.S. personal-use real estate to be considered as an SPC, and thus to avoid a shareholder benefit under subsection 15(l).  These conditions are:

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 an individual and persons (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 of the property by the corporation, with the result that the corporation would show no profit or loss with respect to the property on any of its income tax 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.

You have requested our interpretation of this stated policy to the following hypothetical situation:

i)        Mr. A is an individual resident in Canada;

ii)       Mr. A is the sole shareholder of a Canadian-controlled private corporation ("Holdco") whose sole asset consists of a vacation property (the "Property") located in the United States;

iii)      The ownership of the Property meets all of the Department's publicly-stated positions on SPC's noted above;

iv)       Mr. A has two adult children who establish a corporation (Childco).  The children advance sufficient funds to the corporation (50 % per child) enabling Childco to purchase the Property from Holdco at a price equal to fair market value.

v)        The sale to Childco is made on the condition that Mr. A be granted free access and use of the Property for the remainder of his lifetime.

You have assumed that under the above scenario the conditions outlined by the Department could continue to be meet.  However, in our view all these conditions would not be met by the arrangement you have described.  In giving Mr. A complete free access to the Property, it cannot be said that the only objective of the corporation (Childco) is the holding of property for the personal enjoyment of the shareholders (the Children).  The rent-free use of the residential property, with the shareholder's consent, by persons other than the shareholder, would indicate that the corporation may have other purposes for its existence and that it is not a "Single Purpose Corporation". If this were the case, a benefit would be included in the shareholder's income.

We trust the foregoing comments will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch