4 May 1999 External T.I. 9906705 - PERSONAL USE PROPRERTY

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:

A single-purpose corporation (SPC) owns a Florida condominium that is used solely by the shareholder of the SPC. The shareholder paid for the purchase of the condominium and has paid all costs to maintain the property. The taxpayer inquired if the Department would consider the shareholder of the SPC to be the beneficial owner of the residence for the purpose of claiming the principal residence exemption on the sale of the condominium.

Position TAKEN:

Question of fact.

Reasons FOR POSITION TAKEN:

Paragraph 1 of IT-216 refers to ”an agreement or declaration of trust, entered into before or at the time the property was acquired”. The request makes no reference to such an agreement.

XXXXXXXXXX 5-990670
D. Miller
Attention: XXXXXXXXXX

May 4, 1999

Dear XXXXXXXXXX:

Re: Personal-Use Property

This is in reply to your letter of March 16, 1999, regarding whether the shareholder of a single purpose corporation (“SPC”) can be the beneficial owner of a Florida condominium for the purpose of claiming the principal residence exemption on the disposition of the condominium.

We understand that a SPC owns a personal-use property, being a Florida condominium, which is used solely by the shareholder of the SPC. This condominium unit would qualify as the shareholder’s principal residence were it not owned by the SPC. The shareholder paid for the property, has paid all costs to maintain the property and has made all the decisions regarding the property. You are of the opinion that it could be argued that the SPC simply holds title to the property in trust for the shareholder, and the shareholder could be considered the beneficial owner of the property for the purposes of claiming the principal residence exemption on the sale of the property.

Our Comments

The Department has always assumed that the SPC would have legal and beneficial ownership of the property. It would seem to defeat the purpose of using a SPC if the arrangement has been structured so that the shareholder maintains beneficial ownership in the property. For example, under such circumstances, the U.S. would likely look through the corporation for U.S. estate tax purposes.

In any event, it is a question of fact whether the shareholder can be considered to be the beneficial owner of the property. The Department would only accept that the SPC held the vacation property in trust, as agent for the shareholder, where there is an agreement or declaration of trust, entered into before or at the time the property was acquired, between the SPC 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 trust. Based on the information provided, it does not appear that such documentation exists.

We trust that these comments will be of assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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