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.
| 920682 |
| 24(1) |
|
|
A. Humenuk |
| (613) 957-2134 |
| Attention: 19(1) |
| May 5, 1992 |
Dear Sirs:
Re: Employee Loans to Acquire a Dwelling
We are replying to your letter of February 29, 1992 concerning a housing loan provided to an employee who is also a major shareholder.
You describe a situation in which a corporation has loaned funds to an employee-shareholder in order to enable that shareholder to acquire a dwelling for his occupation. However, the shareholder has been unable to sell his former residence and as a result has not yet moved into the residence acquired with the loan provided by the corporation. The shareholder intends to offer the new residence for rent under a one year lease, presumably with the intent to occupy the new residence if the former residence is sold within the year. You have asked whether the rental of the new residence will disqualify the loan from being treated as a loan described in subparagraph 15(2)(a)(ii) of the Income Tax Act (the Act).
It is a question of fact as to whether a particular dwelling is acquired for the purpose of an individual's habitation which can only be determined with reference to all the relevant facts and circumstances of a particular case.
Furthermore, we are not prepared to comment on an actual transaction that has already taken place. In order to obtain our views on the specific transaction described in your letter, you should provide the full details to the local district taxation office for their consideration and reply. However, we offer the following general comments which may be of assistance to you.
The fact that a shareholder does not immediately inhabit the dwelling acquired with the loan from the corporation does not in itself mean that the loan does not meet the criteria for exemption under paragraph 15(2)(a)(ii) of the Act since it is the purpose or intent of the loan which is significant in this regard. However, in our view a dwelling place will not generally be considered to have been acquired for an individual's habitation unless the individual in fact "ordinarily inhabits" that dwelling, within the meaning of those words as set out in paragraph 9 of Interpretation Bulletin IT-120R3 "Principal Residence", within a reasonable time frame. In the situation where a shareholder's original intent to inhabit a dwelling is thwarted, it is a question of fact as to whether the purpose of holding the property and thus, the purpose of the loan, is still to provide the shareholder with a residence for his or her occupation.
We trust our comments have clarified our position in this matter.
Yours truly,
J.A. Szeszyckifor DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch
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