1999 Ruling 9924943 - SHAREHOLDER BENEFIT - AIRPLANE

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: Whether there is a shareholder benefit where an airplane is transferred to a corporation under section 85 to avoid potential liability beyond insurance coverage and the airplane is used solely for personal purposes by the taxpayer who is the sole shareholder of the corporation.

Position: Subsection 15(1) of the Act will not be applied to include an amount in the income of the taxpayer for the year with respect to his personal use of an airplane owned by a corporation.

Reasons: Subsection 15(1) will not apply provided that the airplane is not used for commercial purposes and all expenses of the corporation are paid by the taxpayer personally.

XXXXXXXXXX
XXXXXXXXXX 992494
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX (received by us on XXXXXXXXXX) wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. We also acknowledge receipt of your facsimiles as well as the information provided in our various telephone conversations.

To the best of your knowledge, and that of the taxpayer, none of the issues involved in the ruling request is:

(i) involved in an earlier return of the taxpayers or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a tax return previously filed by the taxpayers or a related person;

(iii) under objection by the taxpayers or a related person;

(iv) before the courts and there is no judgment that has been issued in which the time limit for appeal to a higher court has not expired; and

(v) the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate.

DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

(b) "adjusted cost base" ("ACB") has the meaning assigned to that term by section 54 of the Act;

(c) "agreed amount" in respect of a property means the amount that the transferor and the transferee of the property have agreed upon in their election under subsection 85(1);

(d) "BCA" means the Business Corporations Act XXXXXXXXXX, as amended to the date hereof and, where applicable, its predecessor statutes;

(e) "Canadian-controlled private corporation" ("CCPC") has the meaning assigned to that term by subsection 125(7) of the Act;

(f) "paid-up capital" ("PUC") has the meaning assigned to that term by subsection 89(1) of the Act;

(g) "taxable Canadian corporation" ("TCC") has the meaning assigned to that term by subsection 89(1) of the Act.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

FACTS

1. XXXXXXXXXX (XXXXXXXXXX) is the owner of a XXXXXXXXXX airplane (the "Airplane"). The Airplane is not used for commercial purposes nor does XXXXXXXXXX intend to use it for commercial purposes.

2. XXXXXXXXXX is concerned that he may have an unacceptable potential liability not covered by insurance that could occur as a result of the use of the Airplane. Therefore, XXXXXXXXXX wishes to transfer the Airplane to a limited liability corporation to limit his potential liability exposure.

PROPOSED TRANSACTIONS

3. The Airplane will be appraised by an independent third party in the business of making such appraisals to determine the fair market value of the Airplane.

4. XXXXXXXXXX will incorporate a new corporation ("VCo") under the provisions of the BCA. VCo will be a CCPC and a TCC. The authorized share capital of VCo will include an unlimited number of voting common shares. At the time of incorporation, one (1) common share of VCo will be issued to XXXXXXXXXX for nominal consideration of $XXXXXXXXXX.

5. XXXXXXXXXX will transfer the Airplane to VCo in exchange for XXXXXXXXXX additional voting common shares of VCo with a fair market value and paid-up capital of $XXXXXXXXXX, and a non-interest-bearing promissory note payable on demand issued to XXXXXXXXXX having a principal amount and fair market value equal to the agreed amount less $XXXXXXXXXX.

6. XXXXXXXXXX and VCo will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6) of the Act, to have the rules in subsection 85(1) of the Act apply to the transfer of the Airplane from XXXXXXXXXX to VCo as described in paragraph 5 above. The agreed amount specified in the election will be equal to the lesser of the adjusted cost base of the Airplane to XXXXXXXXXX immediately before the transfer, and the fair market value of the Airplane at the time of the transfer.

ADDITIONAL INFORMATION

7. The Airplane will be used solely for personal purposes by XXXXXXXXXX and will not be used for commercial purposes.

8. The only transactions to be undertaken by VCo will relate to its ownership of the Airplane.

9. VCo will not claim any expenses for income tax purposes.

10. XXXXXXXXXX will pay all expenses of VCo personally.

PURPOSE OF THE PROPOSED TRANSACTIONS

11. XXXXXXXXXX is concerned that he may have an unacceptable potential liability not covered by insurance that could occur as a result of the use of the Airplane. Therefore, XXXXXXXXXX wishes to hold the Airplane in a single purpose corporation and pay all expenses of the corporation personally.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we confirm the following:

A. Subsection 15(1) of the Act will not be applied to include an amount in the income of XXXXXXXXXX for the year with respect to his personal use of the Airplane transferred to VCo, provided that the Airplane is not used for commercial purposes and that XXXXXXXXXX pays all of the expenses of VCo personally.

B. Subsection 245(2) of the Act will not be applied to the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.

The above rulings are based on the law as it presently reads and do not take into account any future amendments to the Act, whether currently proposed or not, which could have an effect on the rulings provided herein.

COMMENTS

1. Nothing in this ruling should be construed as implying that the Canada Customs and Revenue Agency has agreed to or reviewed:

(a) the determination of the fair market value or ACB of any particular asset or the paid-up capital of any shares referred to herein; or

(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

Yours truly,

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

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