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.
Principal Issues:
whether a loan to an employee will qualify as a 15(2)(a)(ii) housing loan if the loan proceeds are gifted to the spouse who then acquires a dwelling in which the employee and employee's spouse will reside
Position TAKEN:
the individual to receive the loan must be the same individual who acquires the dwelling. Further, where the prima facie purpose of the loan is for a purpose other than the acquisition of a dwelling (such as gifting the proceeds to a spouse), it would likely fail the purpose test in any case.
Reasons FOR POSITION TAKEN:
received confirmation of above interpretation from Finance (is in agreement with the intention of the legislation).
933229
XXXXXXXXXX S. Short
Attention: XXXXXXXXXX
June 17, 1994
Dear XXXXXXXXXX:
Re. Subsection 15(2) of the Income Tax Act
This is in reply to your letter of November 5, 1993 wherein you request an opinion regarding the application of subsection 15(2) of the Income Tax Act (the Act) in the situation described below.
1. "A" is a corporation. Its share capital is owned by "X", an individual, and her brother, "Y". "X" and "Y" each own 50% of the voting common shares of "A".
2. "B" is is a wholly-owned subsidiary of "A".
3. "Z" is an individual married to "X". He is also an employee of "B".
4. "B" loans $150,000 to "Z" under bona fide arrangements, with reasonable repayment terms. The purpose of the loan is to enable "Z" to gift the proceeds to his spouse "X" so that she can acquire a dwelling in which "X" and "Z" will reside; thus, the habitation test in subparagraph 15(2)(a)(ii) of the Act will be met.
Your question is whether subparagraph 15(2)(a)(ii) of the Act will apply to preclude the taxing of the loan under subsection 15(2) of the Act even though the individual who received the loan will not acquire the dwelling directly but rather his spouse "X" will acquire the dwelling.
It is your opinion that subsection 15(2) of the Act may apply because "Z", the employee person receiving the loan, is connected with a shareholder ("X") of a related corporation ("A"). Further, it is your view that subparagraph 15(2)(a)(ii) of the Act may apply to preclude the requirement that the loan amount be included in "Z's" income if it can be established that "Z" acquired the dwelling for his habitation.
The situation described above appears to relate to specific taxpayers and involves proposed transactions. Confirmation of the tax consequences of such transactions will only be provided in response to a request for an advance income tax ruling. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2 and the related Special Release dated September 30, 1993. We are, however, providing you with the following general comments. Unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the "Act").
We agree with your interpretation that a loan amount falls within the purview of subsection 15(2) of the Act where "a person ... is connected with a shareholder of a particular corporation...and the person...has in a taxation year received a loan from...the particular corporation, (or) to any other corporation related thereto...". However, it is our view that a loan will not meet the exclusion requirements of subparagraph 15(2)(a)(ii) of the Act where the individual to receive the loan is not the same individual to acquire the dwelling. Subparagraph 15(2)(a)(ii) of the Act clearly requires that the individual (who receives the loan) use the funds to "acquire a dwelling". The individual referred to in subparagraph 15(2)(a)(ii) of the Act has not acquired a dwelling where the dwelling has been acquired by another person. Further, where the prima facie purpose of the loan is for a purpose other than the acquisition of a dwelling (such as gifting the proceeds to a spouse or other person), it is our opinion that the loan may fall outside the requirements of subparagraph 15(2)(a)(ii) of the Act.
We trust the above comments are of assistance to you.
Yours truly,
P.D. Fuoco
For Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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