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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sir:
RE: Subsection 15(2) of the Income Tax Act
This is in reply to your letter of June 2, 1993 wherein you requested a technical interpretation concerning the application of paragraph 15(2) of the Income Tax Act ("Act").
The situation outlined in your letter appears to involve actual proposed transactions with identifiable taxpayers. As indicated in Information Circular 70-6R2, we do not express opinions on specified proposed transactions other than as a reply to an advance income tax ruling. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, the following general comments may be of assistance to you.
An individual who has in a taxation year received a loan from a corporation is required pursuant to paragraph 15(2) of the Act to include the amount of the loan in his income for the year in which the loan is received unless the loan comes within the exceptions described in paragraph 15(2).
The qualification of a loan for the exemption under subparagraph 15(2)(a) of the Act for the acquisition of a dwelling is determined at the time of its inception. As long as the requirements are satisfied at that moment, the exemption applies for the duration of the loan.
Whether bona fide arrangements were made at the time a loan was made, for repayment within a reasonable period of time, is a question of fact that can only be determined upon consideration of all the circumstances of a particular taxpayer's case. The Department generally considers that a bona fide arrangement is one that is consistent with normal commercial practice which would prevail in a similar situation.
In our view, it is in general inconsistent with normal commercial practice for a lender to loan money for the purchase of a dwelling without security and without repayment of the loan when the taxpayer disposes of the dwelling.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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