13 January 1993 Income Tax Severed Letter 9232775 F - Single-purpose Corporation - Personal-use Assets

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.

923277 XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Single-purpose Corporations Holding Personal-use Assets

This is in reply to your letter of October 29, 1992 in which you requested our opinion concerning single-purpose corporations holding personal-use assets. Specifically, you queried whether it would possible for a taxpayer to transfer property such as antiques, art, jewellery, silverware, stamps and cars on a fully taxable basis to the taxpayer's single-purpose corporation, followed by a sale of the shares of the corporation to the taxpayer's spouse. You stated that the rationale for such transfers is to avoid provincial sales taxes which would be payable on a direct transfer of the assets. You referred to Revenue Canada's response to question 20 in the 1980 Canadian Tax Foundation Roundtable, and you queried whether there would be no taxable benefit with respect to such assets being held in the corporation.

Our Comments:

The situation you described appears to involve specific taxpayers and specific contemplated transactions. As explained in Information Circular 70-6R2 dated September 28, 1990, assurance as to the tax consequences of proposed transactions is provided by the Rulings Directorate but only on an advanced income tax rulings basis and only with respect to the taxpayers identified in such rulings. Although we are unable to provide any opinion in respect of the specific case you have described, we have set out below some comments of a general nature which may be of assistance to you. The Department has maintained its administrative position which was stated in our response to question 20 of the 1980 CTF Roundtable. This position was confirmed in our response to question 14 of the 1985 CTF Roundtable, but it was noted that the administrative position may not apply to situations where funds are advanced to the corporation for the purchase of the property by someone other than the shareholder. The position was again confirmed in our response to question 9 of the 1989 CTF Roundtable, and it was also stated that the property acquired by the corporation would have to be acquired on a fully taxable basis.

It should be noted, however, that the 1980 question dealt with the issue of residential property located in the United States being held by a Canadian corporation for the occupancy of the corporation's shareholder. The position adopted was an administrative concession and it does not extend to other scenarios. It would not extend to personal-use assets such as antiques, art, jewellery, silverware, stamps or cars. Thus, the taxpayer in your example would not be able to rely on our administrative position to avoid the benefit provisions of subsection 15(1) of the Income Tax Act.

The amount of the benefit conferred on a shareholder can only be determined subsequent to a review of all of the facts in each particular situation. In the case of artwork, antiques or any other luxury property it may be very difficult to find a fair market rental value which could be used in the determination of the shareholder benefit and, as stated in our response to question 33 at the 1987 Revenue Canada Roundtable, the benefit may have to be determined using a normal rate of return on the greater of the cost or fair market value of the property, plus the related operating costs, less any consideration paid to the corporation by the shareholder.

We trust that our comments will be of assistance to you.

Yours truly,

E. Wheeler for directorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch