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.
Principal Issues: Whether a disposition (and possible income or capital gain) occurs on a change in legal ownership.
Position: It is a question of fact.
Reasons: Where there is no change in beneficial ownership there is generally no disposition under the Act.
XXXXXXXXXX
2011-043019
Kathryn McCarthy CA
February 14, 2012
Dear XXXXXXXXXX :
Re: Beneficial Ownership
This is in response to your letter of December 1, 2011, concerning the above-noted subject.
You described a client which is a corporation engaged in the business XXXXXXXXXX .
XXXXXXXXXX . The period of use is from XXXXXXXXXX in each calendar year. XXXXXXXXXX .
XXXXXXXXXX to a third party. However the third party was unable to obtain financing without the promise of obtaining legal title to XXXXXXXXXX as security for a loan. Consequently, XXXXXXXXXX transferred the legal title to XXXXXXXXXX ots to XXXXXXXXXX . The only expense incurred by XXXXXXXXXX to obtain legal title was legal fees. XXXXXXXXXX is now able to dispose of their legal title to XXXXXXXXXX to a third party purchaser.
You enquired whether a disposition (and possible income or capital gain) has occurred under the Income Tax Act ("the Act") when XXXXXXXXXX transferred the legal title to XXXXXXXXXX from XXXXXXXXXX to XXXXXXXXXX in exchange for XXXXXXXXXX cancelling their exclusive occupancy agreement.
Our Comments
Although your situation involves completed transactions, we are prepared to offer the following general comments, which may be of assistance.
The Act does not define the term "owned". In the common law jurisdictions, two forms of property ownership are recognized - legal and beneficial. Normally "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. By contrast, the term "beneficial ownership" is used to describe the type of ownership of a property by a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. The determination of whether a person beneficially owns a property is a question of fact that can only be determined after a review of all the documents and the circumstances applicable to a particular situation.
The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership in a property, consideration should be given to 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 to pay property taxes and other relevant rights and obligations. Not all of these incidents of ownership need occur concurrently before it is concluded that the person has beneficial ownership of the property. Further information concerning "beneficial ownership" and "legal ownership" is available in Interpretation Bulletins IT-437R, Ownership of Property (Principal Residence), and IT-170R, Sale of Property - When Included in Income Computation, on the CRA's website at www.cra.gc.ca.
Subsection 248(1) of the Act provides a definition of "disposition" for income tax purposes. The definition of disposition describes various types of transactions that may or may not result in a disposition for the purposes of the Act. However, the definition of disposition will not include, inter alia, most transfers of property for the purpose only of securing a debt or loan, or most transfers of property as a consequence of which there is no change in the beneficial ownership of the property. As such, if the facts show that a particular person is the beneficial owner of a particular property and subsequently obtains legal title to that property, that would not, in and of itself, generally cause a disposition to occur and a possible capital gain (or income) would likely not be triggered under the Act.
We trust the foregoing comments are of assistance.
Yours truly,
Michael Cooke
Manager
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012
Email this Content