15 December 1995 External T.I. 9530865 - SHAREHOLDER BENEFIT - IMPROVEMENTS TO BUILDING

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:

shareholder benefit - improvements to building owned by shareholder

Position:

question of fact

Reasons:

		953086
XXXXXXXXXX 	T. Harris

December 15, 1995

Dear Sir:

Re: Subsection 15(1) - Benefit Conferred on a Shareholder

This is in reply to your letter of November 20, 1995 wherein you requested our views concerning the application of subsection 15(1) of the Income Tax Act to a proposed transaction described in your letter.

As indicated in paragraph 21 of Information Circular 70-6R2, it is not our practice to comment on the tax consequences relating to specific proposed transactions other than in the form of an advance income tax ruling request where the identity of the parties is known and all the facts surrounding the proposed transaction are presented to us. We can, however, provide the following general comments which may be of assistance to you.

As outlined in paragraph 10 of Interpretation Bulletin IT-432R2, where an improvement or addition is made by a corporation to a building owned by a shareholder, a benefit is considered to have been conferred on the shareholder if such improvement or addition vests in the owner of the building. The amount of the benefit is considered to be equal to the present value of the amount, if any, by which the improvement or addition increases the value of the shareholder's reversionary interest in the building.

It would be a question of fact as to whether an improvement or addition vests in the shareholder as owner of the land. In this regard, the Federal Court of Appeal stated in Arthur Rudnikoff v. The Queen, 75 DTC 5008, "while the general rule, both in the common law provinces and in the Province of Quebec is that a substantial building becomes a part of the land and belongs to the owner of the land, this situation may be changed, by contract or otherwise, so that ownership of the building is separate from ownership of the land... Such a result would, however, follow only as a result of clear language...".

It would also be a question of fact as to whether an improvement or addition would result in an increase to the value of the shareholder's reversionary interest in the building. However, to the extent that it does, a benefit will be considered to have been conferred on the shareholder. As indicated in paragraph 14(j) of Information Circular 70-6R2, it is not our practice to rule or express an opinion concerning the determination of the fair market value of a property.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch