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 the cost of the luxury automobile can be included in Class 10 of Schedule II of the Income Tax Regulations (the "Regulations") instead of Class 10.1.
Position: Probably not in this situation.
Reasons: While a question of fact, it appears that there is an attempt to avoid Class 10.1 treatment.
XXXXXXXXXX
2011-039934
Michael Cooke, C.A.
April 7, 2011
Dear XXXXXXXXXX :
Re: Non-arm's Length Lease of a Luxury Automobile
We are writing in response to your facsimile of March 14, 2011, concerning a situation involving a non-arm's length lease of an automobile costing more than $30,000 (excluding taxes).
In particular, we understand that a corporation ("PCo") will borrow funds from its subsidiary ("SCo") and use such funds to purchase a luxury automobile costing more than $30,000. PCo will lease the luxury automobile to SCo. The luxury automobile will be used by a shareholder of PCo.
You have asked whether the cost of the luxury automobile in these circumstances would be included in Class 10 of Schedule II of the Income Tax Regulations (the "Regulations") and whether PCo's capital cost allowance claims in respect of that automobile would be subject to the limitation set out in subsection 1100(15) of the Regulations.
Our Comments:
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed the inquiry should be addressed to the relevant Tax Services Office (the "TSO"). A list of TSOs is available on the "Contact Us" page of the Canada Revenue Agency's ("CRA's") website. Notwithstanding the forgoing, we are prepared to provide the following comments.
As discussed with you (XXXXXXXXXX / Cooke), the CRA is unable to confirm that the particular automobile acquired by PCo would be included in Class 10 of Schedule II of the Regulations. In particular, we have a significant concern as to whether the particular automobile would be acquired by PCo for the purposes of carrying on a business of renting or leasing motor vehicles or whether such business would be considered as PCo's principal business. Given the facts in the above-described transactions, in our view, the particular automobile would be included in Class 10.1 of Schedule II of the Regulations.
We trust that these comments will be of assistance.
Yours truly,
Sandy Parnanzone
Manager
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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