4 December 1989 Income Tax Severed Letter ACC8961 F - Personal-use Property

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.

19(1)

I am writing in response to the question you raised with me in Toronto on November 29, 1989, concerning the Department's administrative position of not asserting that a corporation would have conferred a benefit on its shareholder(s) in respect of the use of personal-use property owned by the corporation, as outlined by the Department in past Revenue Canada Round Table sessions.

Specifically, you have asked why it is not acceptable that the fourth requirement mentioned in our response to Question 20 at the 1980 Round table session be met by the following procedure:

(a)     shareholder provides to corporation by investment in shares or, if ACB increase is a problem, by a loan due in 99 years without interest, and

(b)     corporation uses funds so invested to pay expenses and records deficit surpluses.

The said fourth requirement is that the shareholder be charged with all the operating expenses of the property by the corporation, with the result that the corporation would show no profit or loss with respect to the property on any of its returns.

When we responded to the initial question on this matter in 1980, we envisioned the corporation as a mere conduit, the only "asset" of which would be the personal-use property, and that all expenses would be directly and immediately passed through to the shareholder with the object of avoiding the application subsection 15(1) of the Act and ignoring, administratively, the existence of the corporation. The procedure you propose would see the corporation owning assets apart from the personal-use property.  Moreover, we believe that the corporation would not be a true conduit in that the income/losses from its investments would not be passed through to the shareholder and it would clearly highlight the separate existence of the corporation which would, as taxpayers expanded this position, raise a number of Canadian tax issues.

We do not now wish to begin to interpret our requirements to give them any meaning beyond exactly what was said. While we understand the difficulties facing Canadian taxpayers as a result of the recent changes to the U.S federal estate and gift taxes, we are of the view that those difficulties, which extend well beyond those being addressed by the Department's administrative position, can be more effectively addressed by a Government-to-Government agreement that would provide an appropriate tax credit.

We thank you again for your suggestions, but regret to inform you that we are not prepared to adopt them. As I indicated at the recent Revenue Canada Round Table, the Government is seeking a more effective solution.

Yours sincerely,

R.J.L. ReadActing Assistant Deputy MinisterLegislative and IntergovernmentalAffairs Branch