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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
taxation of vacation timesharing arrangements
Position:
While it depends on structure of the arrangement, the value of accommodation received as part of a bartering transaction is income
Reasons:
it-490
MINISTER 97-04402M
DEPUTY MINISTER'S OFFICE (2)
ADM'S OFFICE (2)
PENDING
RETURN TO INCOME TAX RULINGS
AND INTERPRETATIONS DIRECTORATE
15TH FLOOR, ALBION TOWER
October 21, 1997
XXXXXXXXXX
Dear XXXXXXXXXX:
Thank you for your letter of June 26, 1997, concerning the tax implications of an investment being marketed by XXXXXXXXXX. I also appreciate receiving your kind words on my appointment as Minister of National Revenue.
The treatment of an investment for income tax purposes is determined by its attributes and by the intentions of the person who acquires it. With respect to the investment described in your letter, the tax implications will depend in part on the manner in which the ownership of the resorts is structured, as well as the investor's purpose and use of the investment.
From your description of the marketing approach used for this investment, it appears to be a form of vacation ownership or timesharing. The assertion by the sales agent that this particular investment does not involve a timesharing arrangement may be due to a difference in the manner in which the arrangement is structured from that used in a traditional timesharing arrangement.
If investors in a timesharing arrangement own the property used for accommodation under the terms of the timesharing arrangement, they must include their share of any rental income received for the use of the property in the calculation of income for tax purposes. This would also include the value of any goods or services received by means of a bartering transaction, such as the value of accommodation enjoyed by the investor at a location owned by someone else. For example, if an individual owns an interest in a specific housing unit and is able to use someone else's unit in exchange for the use of his or her unit, the fair rental value of the unit would be included in the individual's share of rental income from that property.
However, if the property used for accommodation under the terms of a timesharing arrangement is owned by an association or corporation, the investor would likely acquire property that consists of a right to occupy a suite or a dwelling owned by the association or corporation for a specified duration of time each year. Accordingly, any amounts received in respect of the property would be included in the association's or corporation's income. Since an investor under this type of arrangement would not own the property used for accommodation, no amount would be required to be included in the investor's income from the allocation of annual credits or from the application of the credits to the cost of the investor's accommodation at a vacation resort. However, if the investor were to transfer his or her annual time allotment under such an arrangement to any other person, any income derived from this arragement would be taxable to that individual.
With respect to the sale of the investment to another person at some future time, the intention of the purchaser is critical in determining the tax treatment of that future disposition. In establishing intent, various factors, including the vendor's promotional literature, the way the purchase is financed, and the purchaser's subsequent actions with respect to the investment, are considered. When a person acquires an investment with the chief intention of reselling it at a higher price, it is inventory and any gain on a subsequent sale is fully taxable. However, when an individual purchases an investment with the intent of holding it for a long time, either for personal use or as an investment, any future gain on the disposition of that investment would be treated as a capital gain, three quarters of which would be included in income.
Please note that the tax treatment of vacation ownership or timesharing under United States law may not be the same as for Canada. Should you require information concerning United States tax law, you may contact the Internal Revenue Service Attaché at the following address: Embassy of the United States of America, Suite 201, 60 Queen Street, Ottawa, Ontario K1P 5Y7 or by telephoning 1-613-563-1834.
You are quite correct in observing that business cards should be used only for official purposes. This is made clear to all employees and I will ensure that the message is reinforced. Of course, even when a business card is used for official purposes, the recipient of the business card may subsequently use it for a purpose other than that intended by the employee named on the card.
I have sent a copy of your letter to departmental officials at
XXXXXXXXXX
is aware of our correspondence and would be pleased to be of assistance. However, the confidentiality provisions of the Income Tax Act preclude departmental officials from providing any information concerning the income tax affairs of another taxpayer without that taxpayer's permission.
Thank you for bringing this matter to my attention.
Yours sincerely,
Herb Dhaliwal, P.C., M.P.
A. Humenuk
September 12, 1997
972333
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