29 November 1993 Income Tax Severed Letter 9318455 - Taxable Benefit for Shareholders

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                            5-931845
XXXXXXXXXX                       S. Labarre
                                            (613) 957-8953

Attention: XXXXXXXXXX

November 29, 1993

Dear Sirs,

Re: Subsection 15(1) of the Income Tax Act

This is in response to your letter of June 17, 1993 in which you requested our confirmation on how to calculate the taxable benefit for shareholders for the purposes of the application of subsection 15(1) of the Income Tax Act (the "Act").

In our view, the determination as to whether such a benefit has arisen in a particular situation, as well as the quantum thereof, involve questions of fact which can only be resolved after a review of all of the relevant facts of that particular situation. Nevertheless, we can provide you with the following general comments.

At question 33 of the 1987 Revenue Canada Round Table, in Report of Proceedings of the Thirty-Ninth Tax Conference, 1987 Conference Report(Toronto: Canadian Tax Foundation, 1988), the Department's position on what factors would be considered in determining the amount of a benefit when a corporation property is made available to a shareholder was stated as follows:

"When a corporate property, for which there is a commercial rental market, is made available to a shareholder, the department usually considers that the benefit is equal to the fair market rental for the property less any consideration paid. The rent charged may, however, be totally inappropriate for measuring the value of the benefit in cases where it does not provide a reasonable return on the value or the cost of the property. This may be the case in respect of properties such as a luxury residence or yacht available for the personal use of a shareholder. In such cases, the amount or value of the benefit will usually be determined by the department taking into account a normal rate of return on the greater of the cost or fair market value of the property, plus the related operating costs (the "imputed amount"), less any consideration paid to the corporation by the shareholder."

In the case Lloyd Youngman v. Her Majesty The Queen, 90 DTC 6322, the Federal Court of Appeal reduced the amount of a subsection 15(1) of the Act benefit arising as a result of the personal use of a corporate asset by an amount relating to forgone interest on a non-interest-bearing loan made by the shareholder to the corporation. In question 8 of the 1990 Revenue Canada Round Table, in Report of Proceedings of the Forty-second Tax Conference, 1990 Conference Report, the Department reiterated that our position in respect of determining the amount of a benefit when corporate property is made available to a shareholder remains as stated at question 33 of the 1987 Revenue Canada round table. However, the Department also stated that in cases where the circumstances are the same as those in the Youngman case, the Department accepts that in determining the amount of the benefit, the shareholder's interest-free loan to a corporation to enable it to purchase the property should be taken into consideration. The Department is not prepared to extend a benefit offset as determined in Youngman beyond the facts of that case.

The above comments are given in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly, for Director Reorganizations and Foreign Division Rulings Directorate Legislative and Intergovernmental Affairs Branch