19 August 1996 External T.I. 9622965 - SALE OF RESIDENCE BY SHAREHOLDER TO CORP.

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 requesting technical interpretation in the form of confirmation of value to be placed on personal residence to be transferred to his corporation as well as confirmation of the value of any benefit in relation the difference between the rent to be charged and that determined based on the investment by the corporation as in the case of Youngman, 90 DTC 6322 (FCA).

Position:

Proposed transactions involving determinations of fact, not a matter for a technical interpretation or advance income tax ruling.

Reasons:

Not the subject of a technical interpretation, since there are contemplated transactions.

									962296
XXXXXXXXXX							A.M. Brake

Attention: XXXXXXXXXX

August 19, 1996

Dear Sirs:

Re: Sale of Residence by Shareholder to Corporation

This is in reply to your letter of June 26, 1996, relating to a situation where you intend to transfer your personal residence to your corporation and rent the property, as a residence, from the corporation after it has been transferred. In this regard you have referred to the case of Youngman, 90 DTC 6322 (FCA) for purposes of calculating the benefit to the shareholder.

Our Comments

In our view, the determination as to whether such a benefit has arisen in a particular situation, as well as the quantum thereof, involve questions of fact which can only be resolved after a review of all of the relevant facts of that particular situation. Nevertheless, we can provide you with the following general comments.

At question 33 of the 1987 Revenue Canada Round Table, in Report of Proceedings of the Thirty-Ninth Tax Conference, 1987 Conference Report (Toronto: Canadian Tax Foundation, 1988), the Department's position on what factors would be considered in determining the amount of a benefit when a corporation's property is made available to a shareholder was stated as follows:

"When a corporate property, for which there is a commercial rental market, is made available to a shareholder, the Department usually considers that the benefit is equal to the fair market rental for the property less any consideration paid. The rent charged may, however, be totally inappropriate for measuring the value of the benefit in cases where it does not provide a reasonable return on the value or cost of the property. This may be the case in respect of properties such as a luxury residence or yacht available for the personal use of a shareholder. In such cases, the amount or value of the benefit will usually be determined by the Department taking into account a normal rate of return on the greater of the cost or fair market value of the property, plus the related operating costs (the "imputed amount"), less any consideration paid to the corporation by the shareholder."

In Youngman, the Federal Court of Appeal reduced the amount of a subsection 15(1) of the Act benefit arising as a result of the personal use of a corporate asset by an amount relating to foregone interest on a non-interest-bearing loan made by the shareholder to the corporation. In question 8 of the 1990 Revenue Canada Round Table, in Report of Proceedings of the Forty-Second Tax Conference, 1990 Conference Report, the Department reiterated our that position in respect of determining the amount of the benefit when corporate property is made available to a shareholder remains as stated at question 33 of the 1987 Revenue Canada Round Table. However, the Department also stated that in cases where the circumstances are the same as those in the Youngman case, the Department accepts that in determining the amount of the benefit, the shareholder's interest-free loan to a corporation to enable it to purchase the property should be taken into consideration. The Department is not prepared to extend a benefit offset as determined in Youngman beyond the facts of that case.

The foregoing comments are given in accordance with the practice of providing opinions referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch