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 our administrative policy regarding "single purpose corporations" applies to a Canadian corporation that acquired residential property situated in Canada?
Position TAKEN:
No. Also, the Department is reconsidering its position on "single purpose corporations" in light of the new Canada-U.S. Protocol.
Reasons FOR POSITION TAKEN:
Our administrative position was introduced because of U.S. Estate Tax problems and does not extend to recreational property located in Canada.
950323
XXXXXXXXXX Jim Wilson
613-957-2123
Attention: XXXXXXXXXX
February 13, 1995
Dear Sirs:
Re: Single Purpose Corporation
We are writing in response to your letter of January 6, 1995 wherein you requested our comments on the application of subsection 15(1) of the Income Tax Act (the "Act") to a situation where a corporation owns Canadian recreational real estate for the benefit of its shareholders. Specifically, you requested our views as to whether the Department's administrative policy regarding "single purpose corporations" would apply to such a situation.
Over the years the Department has provided guidelines concerning the conditions which have to be met in order to qualify as a single purpose corporation. The Department's position as to the circumstances in which we will not seek to assert that a benefit under subsection 15(1) of the Act has been conferred on a shareholder of a corporation holding U.S. residential property is an administrative concession by the Department and will not be available unless all of the seven conditions set out by the Department, as restated hereunder, are satisfied.
1)The corporation must be a Canadian corporation.
2)The corporation's only objective is the holding of a residential real property in the United States for the personal use or enjoyment of the shareholder.
3)The shares of the corporation are held by an individual or an individual and persons (other than a corporation) related to the individual.
4)The only transactions of the corporation relate to its objective of holding property for the personal use or enjoyment of the shareholder.
5)The shareholder would be charged with all the operating expenses of the property by the corporation, with the result that the corporation would show no profit or loss with respect to the property on any of its returns.
6)The corporation acquired the property with funds provided solely by the shareholder and not by virtue of his holdings or that of a related person in any other corporation.
7)The property must be acquired by the corporation on a fully taxable basis (that is, without the use of any of the rollover provisions of the Act).
The Department's administrative position outlined above was originally developed in response to U.S. estate tax legislation and was implemented with the sole objective of facilitating the holding of residential real property located in the United States by a Canadian corporation for the occupancy of the corporation's shareholders. At the present time there is no intention to expand this administrative concession to include any other types of property. Our administrative position, therefore, does not extend to Canadian real estate or Canadian vacation property and remains as stated above.
It should also be noted that in light of the Protocol signed on August 31, 1994 amending the Canada-U.S. Income Tax Convention, the Department is reconsidering its administrative position with respect to single purpose corporations. For example, Article 19 of the Protocol (hereinafter referred to as "Article XXIX B of the treaty"), once it becomes law, will resolve many of the problems that confronted Canadian residents who owned or were contemplating the acquisition of personal use real property situated in the United States. Paragraphs 2, 3 and 7 of Article XXIX B of the treaty will generally cause significant reductions to, or quite possibly in the majority of cases, complete exemption from, the U.S. estate tax otherwise exigible. Paragraph 5 of Article XXIX B of the treaty will require Canada to provide a foreign tax credit against Canadian taxes payable on U.S. source income with respect to U.S. estate taxes payable. Once ratified this provision will address the double taxation concern that has been in existence since 1972 when Canada abolished estate taxes (and introduced the deemed realization on death rules) and terminated the Canada-U.S. estate tax treaty.
These comments are made subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
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