5 February 1996 External T.I. 9532355 - LENDING OF $ TO CHILD-ATTRIBUTION RULES

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:

tax implications of parent or grandparent lending money to a child or grandchild at no interest for the purchase of either a home or income producing securities

Position:

referred to IT-510 and 511. Ordinarily when a parent loans funds on an interest-free basis to an adult child for the purpose of assisting the child in buying a home to be used as a principal residence, without any income to be derived therefrom, is not subject to 56(4.1).

Reasons:

one of the main reasons for the loan is not to reduce or avoid tax by causing income from the property to be included in the child's income

									953235
XXXXXXXXXX							Sandra Short

Attention: XXXXXXXXXX

February 5, 1996

Dear Sirs:

Re: Attribution Rules - lending of money to child

This is in reply to your enquiry dated December 8, 1995 which asks the tax implications of a parent or grandparent lending money to a child or grandchild at no interest for the purchase of either a home or income producing securities.

As discussed in Interpretation Bulletin IT-510 "Transfers and Loans of Property made after May 22, 1985 to a Related Minor", subsection 74.1(2) of the Act generally provides that where an individual has transferred or loaned property (including money) to a related minor or to a trust in which a related minor is beneficially interested at any time any income or loss from the property or property substituted therefor is deemed to be income or loss of the individual for a taxation year unless the minor has attained the age of 18 years before the end of the year.

The attribution rules in subsections 74.1 to 74.5 deal with situations where there have been loans or transfers to spouses or certain minors. Subsection 56(4.1) of the Act discusses interest free or low interest loans. Subsection 56(4.1) is discussed in Interpretation Bulletin IT-511R, commencing at paragraph 30.

Ordinarily, if a parent loans funds on an interest-free basis to an adult child for the purpose of assisting that child in acquiring a home to be used as a principal residence, without any income to be derived therefrom, such situation is not subject to subsection 56(4.1). It would not seem that one of the main reasons for the loan is to reduce or avoid tax by causing income from the property to be included in the child's income.

We trust our comments will be of assistance to you.

Yours truly,

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