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.
The determination of the beneficial owner of property
General guidelines provided
Question of fact
April 16, 1997
CALGARY TSO HEADQUARTERS
Attn: Tish Edmondson (613) 957-8953
Problem Resolution Officer
This is in reply to your memorandum of February 26, 1997, wherein you requested us to provide an advance income tax ruling to the representative, XXXXXXXXXX, in respect of a proposed sale of property held by XXXXXXXXXX. A review of the attached documentation indicates that the principal issue turns on the determination of whether the beneficial owner of the property is XXXXXXXXXX or the shareholders of XXXXXXXXXX. As this determination is primarily a factual one, we are unable to issue an advance income tax ruling in respect of this proposed transaction. However, we will provide the following general comments which may enable you to provide assistance to the representative.
We direct your attention to Interpretation Bulletin 216, wherein it states as follows:
"A corporation may hold in trust, as agent for a shareholder, property that was acquired specifically to be held in that way. This situation, however, will only be accepted as a fact where there is an agreement or declaration of trust, entered into before or at the time the property was acquired, between the corporation and the shareholder, which clearly sets out the intention of the parties to the agreement and the degree of participation of the shareholder in the property so held in the trust. Where the foregoing is established to be the situation, the corporation will be looked upon as merely an agent for the shareholder who will be considered to be the beneficial owner of the property."
Although an agency relationship is usually supported by a written agreement to that effect, such a contract may be implied. An implied agency relationship may be found to exist where the conduct of the parties shows an intention to create an agency.
Where it is established that property is held by a corporation as agent for a shareholder, the shareholder will be considered to be the beneficial owner of the property and all the normal consequences of ownership of the property will flow from the arrangement.
We further direct your attention to Interpretation Bulletin 437R which includes comments on the meaning of "beneficial ownership". As noted in paragraph 2 thereof, "legal ownership" exists when title is transferred to, recorded in, registered in or otherwise carried in the name of a person. Legal owners are generally entitled to enforce their ownership rights against all other persons. One person's legal ownership of a property may, however, be subject to another person's "beneficial ownership" of that property. The term "beneficial ownership" is used to describe the type of 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. In determining whether a person has beneficial ownership, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair the obligation, the obligation to pay property taxes and other relevant rights and obligations.
We have briefly reviewed the XXXXXXXXXX Shareholder Agreement and the amended Shareholders Agreement which you have appended to your memorandum and note the following:
1.XXXXXXXXXX was incorporated for the main purpose of holding and maintaining the common lands for the benefit, use and enjoyment of the registered owners, being the shareholders.
2.Under clause XXXXXXXXXX must control, manage and administer the common lands for the benefit of the shareholders
3.The agreement provides that XXXXXXXXXX may borrow money and secure the repayment of such monies by pledging its assets, subject always that such borrowing or pledging shall only be effected by a vote from the shareholders.
Based on the documentation that we have seen, in our view, a reasonable argument may be made that XXXXXXXXXX was established as agent for the shareholders. However, it is necessary to evaluate the conduct of the shareholders and XXXXXXXXXX in order to determine whether the actions of the parties reflected an agency relationship.
In this regard we cite the 1996 Federal Court of Appeal decision of Greenway, (1996 DTC 6529). In this case, the taxpayer was one of a number of investors in a multiple unit residential building (MURB) project and deducted soft costs and legal fees in respect of his interest in the MURB. The Department's position was that the taxpayer did not acquire beneficial ownership of an interest in the MURB. The Court concluded that "whether investors were viewed as undisclosed principals or as beneficiaries of a trust, it is clear that they intended to and did acquire such an interest in the MURB though the vehicle of a numbered company".
Consequently, the intentions and the conduct of the parties to the transaction are vital. As an example we note that the positions taken by the parties with respect to filing income tax returns may be indicative of the intent of the parties. For example, it would be useful to know whether the corporation, XXXXXXXXXX, filed a nil tax return or whether it claimed the expenses related to the land.
In conclusion, the determination of the beneficial owner of property is primarily one of fact which involves a review of the relevant written documentation and a review of the conduct of the parties involved.
Financial Industries Division
Income Tax Rulings and
Policy and Legislation Branch
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