24 January 1995 External T.I. 9427135 - PERSONAL RESIDENCE EXEMPTION - BENEFICIAL OWNERSHIP

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:

Can a property the legal ownership of which is held by a corporation qualify for designation as the principal residence to the beneficial owners of the property?

Position TAKEN:

Question of fact whether or not beneficial ownership exits. If pertinent details and documentation substantiate that beneficial ownership exists, then it would be considered to be "ownership" for the purposes of the definition of the principal residence in section 54 of the Act. The beneficial owner would then be eligible to make the principal residence designation provided the beneficial owner otherwise meets the other pertinent requirements of the definition.

Reasons FOR POSITION TAKEN:

Pevious correspondence, IT-437R, IT-120R4, IT-216

	 	942713
XXXXXXXXXX	D. Zion

Attention: XXXXXXXXXX

January 24, 1995

Dear Sir:

Re: Personal Residence Exemption - Beneficial Ownership

We are writing in response to your letter of October 20, 1994, in which you request our opinion regarding whether or not a parcel of land (the "property") acquired by a corporation may qualify for designation as the principal residence of the beneficial owners of the property. We apologize for the delay in our reply.

Confirmation of the tax consequences of specific transactions is only given by way of an advance income tax ruling as described in Information Circular 70-6R2 "Advance Income Tax Rulings" dated September 28, 1990 and Special Release thereto dated September 30, 1992 and is restricted to proposed transactions. If your enquiry relates to a completed transaction, you may wish to submit your enquiry along will all relevant facts and documentation to the local district taxation office for their views in this regard. However, we offer the following general comments which may be of assistance to you.

It is our understanding that your client has entered into an agreement to acquire a parcel of land which will be used as a principal residence. The client intends to incorporate a corporation in the province of Ontario to hold the legal title to the property of which the client and the client's children will be the beneficial owners. You comment that the Corporation will not record the property as an asset and it will not pay, nor be responsible for any of, the expenses associated with the acquisition and maintenance of the property.

Our Comments

The guidelines for determining beneficial ownership are set out in Interpretation Bulletin IT-437R, Ownership of Property (Principal Residence). It is stated in paragraph 3 of the bulletin that "(t)he term "beneficial ownership" is used to describe the ownership of a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. A person who has beneficial ownership rights but not legal ownership can enforce those rights against the holder of the legal title. For example, beneficial ownership frequently arises when property is held in trust for a person in circumstances where, according to the terms of the trust, that person has authority to instruct the trustee to deal with the property as requested."

Such a determination can only be made when all the facts of a particular case are known. Where the documentation and facts clearly establish that the corporation is holding the property in trust for the beneficial owner, it is our opinion that this beneficial ownership constitutes "ownership" for the purposes of the definition of "principal residence" section 54 of the Income Tax Act (the "Act"). The beneficial owner would thus be entitled to designate the property as a principal residence provided the other applicable requirements of section 54 of the Act are satisfied.

Interpretation Bulletin IT-216, Corporation Holding Property as Agent for Shareholder discusses the circumstances under which a corporation will be considered to be merely an agent for the shareholder, who will be considered to be the beneficial owner of a property, and the resulting tax consequences.

We trust these comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch