8 May 1991 External T.I. 9036855 F - Subsections 15(1), 56(2), 69(2) 212(1), 214(3) and 246(1) of the Income Tax Act

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.

5-903685

Dear Sir:

Re:  Subsections 15(1), 56(2), 69(2) 212(1), 214(3) and  246(1) of the Income Tax Act (the "Act")

We are writing in reply to your letter dated December 18, 1990, in which you requested a technical interpretation of subsection 214(3) of the Act.

Our understanding of the facts is as follows:

(i)     Canco is a corporation resident in Canada and involved in an active business.

(2)     The sole shareholder of Canco is USCO, a corporation resident of the United States.

(3)     The sole shareholder of USCO is Mr. A, a resident of the United States.

(4)     Mr. A owns taxable Canadian property (i.e. real estate) with Canco as one of the tenants.

(5)     Canco is paying rent to Mr. A in excess of what would be considered a reasonable amount.

We are in agreement with you that Canco's rental expense for a taxation year would be limited to a reasonable amount pursuant to subsection 69(2) of the Act.  The rent paid by Canco to Mr. A (including the portion in excess of a reasonable amount) will be taxable in Mr. A's hands pursuant to paragraph 212(1)(d) or subsection 216(1) of the Act, as the case may be.  The Canada-United States Income Tax Convention (1980) does not provide for a reduction of Part XIII tax on such rental income.      

In regard to the application of subsections 15(1), 56(2), 214(3) and 246(1) of the Act to Mr. A or USCO, the department generally does not consider the application of any of these provisions where the benefit in question has been included in the income of the non-resident.  However, a review of all the factors (eg. other tax benefits resulting from the transaction, misrepresentation, negligence, fraud, etc.) would be required before determining whether or not such an administrative policy would be applied. In this regard, since this appears to be a completed transaction, we recommend you contact the relevant District Taxation Office and obtain their decision on the matter.

for DirectorReorganizations and Non-Resident Division Ruling Directorate Legislative and Intergovernmental Affairs Branch