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.
We are interested in knowing whether the Department of Finance finds situations where tax deductions are being passed to taxable entities from non-profit corporations acceptable in policy terms.
The specific situation we are dealing with involves a non-profit housing corporation (the “NPHC”) which owned land and buildings. On December 31, 1987 the NPHC entered into a limited partnership arrangement (the “Partnership”) under which the NPHC was the initial limited partner. The general partner is an unrelated entity. On December 31, 1987, the NPHC sold to the Partnership the buildings which it owned at fair market value end leased to the Partnership the lands which it owned. On the same day, the Partnership leased the buildings and sub-let the land back to the NPHC. The Partnership proposes to issue limited partnership units to obtain funds approximately equal to the purchase price of the buildings. The limited partners will be allocated, among other items, the capital cost allowance on the buildings.
The taxpayer's representatives have indicated that the aforementioned is being implemented to generate supplemental funds to renovate and repair the buildings and to protect the tenants of the buildings from major rent increases not affordable by the tenants. The NPHC has been receiving and will continue to receive rental subsidies from the Ministry of Housing of Ontario and Canada Mortgage and Housing Corporation.
We have recently been asked to confirm that capital cost allowance on the buildings will be available to the Partnership for allocation to the partners. It is our view that the provisions of the Income Tax Act provide for such an allocation, however, we have yet to determine whether the general anti-avoidance provisions will apply to these transactions. In this regard, we are concerned that this allocation may not reflect current Department of Finance tax policy since the principle involved is not significantly different from that relating to universities entering into sale/leaseback arrangements with respect to their libraries; a practice which the Minister of Finance previously took steps to curtail. We would appreciate receiving an indication of the Department of Finance's tax policy concerning the passing of tax deductions from nontaxable to taxable entities.
Since this issue is relevant for purposes of an advance income tax ruling which we now have under consideration, we would appreciate an early response.
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