30 March 2010 External T.I. 2010-0357491E5 - True owner of 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.

Principal Issues: True owner of property: a corporation or its sole shareholder.

Position: Question of fact. See response.

Reasons: See response.

									2010-035749
XXXXXXXXXX 								André Gallant
									(613) 957-8961
March 30, 2010

Dear XXXXXXXXXX :

Re: True owner of property

This is in response to your letter of January 19, 2010, and is further to our telephone conversations (Parnanzone/XXXXXXXXXX and Gallant/XXXXXXXXXX ), regarding the true owner of a property being disposed for the purpose of the Income Tax Act (Canada) (the "Act").

Our understanding of the facts is as follows:

1. In XXXXXXXXXX , the Taxpayer incorporated a company, InsuranceCo, with the intention to operate an insurance agency. The Taxpayer has always been the sole shareholder of InsuranceCo. Neither the Nova Scotia provincial law, nor the Nova Scotia insurance regulatory body prevents a corporation from practicing as an insurance agency in Nova Scotia.

2. On or around XXXXXXXXXX , the Taxpayer entered into a contract with an insurance brokers company ("BrokersCo") to act as an agent for BrokersCo. It is to be noted that the contract was between BrokersCo and the Taxpayer, and not between BrokersCo and InsuranceCo. The Taxpayer also wrote his own name as the producer on every insurance policy that he wrote up.

3. The following activities were carried on in the name of and by InsuranceCo:

a. Purchased land on which a building was already constructed to carry out the insurance business;

b. Purchased all the office furniture, office equipment and office supplies necessary to operate the insurance business;

c. Opened a bank account used for the insurance business with the Taxpayer as the sole signing officer;

d. Hired the staff to provide clerical services, and paid them through its bank account;

e. Treated the Taxpayer as a bona fide employee for all purposes. All required source deductions namely CCP and income taxes, were deducted from the Taxpayer's salary or wages in the same manner as for the clerical staff; and

f. Used a big sign on its building with the corporation's name on the sign, and all other advertising done in the corporation's name.

4. BrokersCo recently entered into a contract with the Taxpayer to purchase the insurance business for $XXXXXXXXXX to be paid in installments over the next ten years. There is no physical asset (e.g., land and building or office furniture) involved in the sale.

You asked whether the $XXXXXXXXXX payable by BrokersCo to the Taxpayer can be reported by InsuranceCo, instead of the Taxpayer, for tax purposes.

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. We are, however, prepared to offer the following general comments, which may be of assistance.

In the present case, it is our understanding that the shareholder of InsuranceCo (i.e., Taxpayer) is the party to the contract with BrokersCo for the sale of the insurance business for $XXXXXXXXXX . While there is generally a presumption that the holder of legal title of a property is also the beneficial owner of the property, there are circumstances where the holder of title is not considered the beneficial owner of the property. The concept of legal and beneficial ownership for tax purposes is discussed in Interpretation Bulletin IT-437R, Ownership of Property (Principal Residence).

Whether or not in a particular case a shareholder holds the title of a property as bare trustee for its corporation who is the beneficial owner is a question of fact that can only be resolved by a complete review of the documents and circumstances of the case. The facts submitted are not sufficient for a resolution in the case at hand. One would also have to review the conduct of the parties involved in the business and the transactions entered into during the period the business was carried on, including, for instance, whether the Taxpayer or InsuranceCo accounted for and reported the business transactions and income for tax purposes. As this matter involves an audit function and since the specific sale transaction you have written about has been completed, you may wish to approach, with the relevant documents and a description of the facts, the local tax services office for an opinion as to whether the Taxpayer or IncuranceCo should report the sale transaction.

We trust that these comments will be of assistance.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch