27 January 1993 Internal T.I. 9234987 F - Dwellings and a Shareholder's Loan

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.

January 27, 1993

Shareholder's Loan - Dwellings

This is in reply to your memorandum of November 18, 1992 in which you asked us to consider a situation which involves the exception set out in subparagraph 15(2)(a)(ii) of the Income Tax Act (the Act).

In the situation under consideration, it is our understanding XXXXXXXXXX

With respect to the above situation, subparagraph 15(2)(a)(ii) of the Income Tax Act (the Act) refers in part to a loan made "to enable or assist the individual to acquire a dwelling ... where the dwelling is for the individual's habitation". In relation to this wording, it is our understanding that you have two concerns. One of them is whether the dwelling needs to be located in Canada. The second is whether the property can be considered to have been acquired for the Taxpayer's habitation.

In the case of the first issue, subparagraph 15(2)(a)(ii) does not require the property to be located in Canada. Accordingly, the loan cannot be precluded from falling within the exception in subparagraph 15(2)(a)(ii) on the basis that the property is located outside Canada.

With respect to the second issue, eligibility for the exemption is dependant on whether the property was acquired for the Taxpayer's habitation recognizing, however, that habitation may be seasonal or temporary (see paragraph 9 of Interpretation Bulletin IT-120R3). In relation to these comments, the Taxpayer's representative has indicated that the Taxpayer goes to XXXXXXXXXX for about a month every year for a vacation and occupies the property during that time period. In the event that this is the only use to which the property was put, then it appears that the dwelling was acquired for the Taxpayer's habitation notwithstanding that the Taxpayer also owns a residence in Canada. However, if the property was acquired for some other purpose, e.g., as an investment, for occupation by relatives, or for any other purpose other than for occupation by the Taxpayer, the property would not be described in subparagraph 15(2)(a)(ii) and the loan would not qualify for exemption thereunder.

The purpose for which the property was acquired involves a question of fact. In this regard, the relevant facts and information could include the following with respect to such a determination:

(a)     the type of property acquired; (b) the use to which the property was put when the Taxpayer did not inhabit it; (c) the extent that the property is used by relatives and other individuals; and (d) whether rental income has been received.

We note that a loan made by a corporation to one of its shareholders would be subject to the provisions of section 80.4 notwithstanding the application of subparagraph 15(2)(a)(ii) of the Act.

If further technical assistance is required, we would be pleased to provide our views.

P.D. Fuoco Section Chief Personal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch