21 January 1994 External T.I. 9321975 F - Personal Residence

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Housing Co-operative

This is in reply to your request for a technical interpretation dated July 28, 1993 concerning 1) whether individuals acquiring shares in a co-operative housing corporation ( "co-operative" ), in which approximately 15% of the space will be commercial in nature and leased to arm's length parties, can be said to be acquiring the shares "for the sole purpose of acquiring the right to inhabit a housing unit owned by the corporation" as required in order to qualify as a personal residence within the meaning of subsection 54(g) of the Income Tax Act, 2) whether income earned by a Canadian Municipality ( the "eunicipality" ) over a sixty-year period, on funds provided by the co-operative to the municipality as a form of "sinking fund" for use by the municipality to "purchase" from the co-operative a building built at the beginning of a sixty-year lease on land owned by the Canadian Municipality, is income of the municipality, and 3) whether either the co-operative or its shareholders would be taxed on the amount received from the municipality as proceeds from the "sale" of the building at the end of the sixty-year period.

Our Comments:

Your letter seems to involve an actual proposed transaction involving a particular taxpayer. Where that is the case, the proposal should be the subject of an advance income tax ruling requested in accordance with the procedure set out in the Department's Information Circular 70- 6R2. We, offer, however, the following general comments.

Issue 1

It would appear that shares in a co-operative which constructs a building of which 15% of the square footage is to be leased commercially ( for example the ground floor of a six or seven story apartment-style building ) would not qualify as having been acquired for the sole purpose of acquiring a housing unit, as required by paragraph 54(g) of the Income Tax Act, since the acquisition of such shares would seem to be for the purposes of both acquiring a housing unit and a commercial property.

Issue 2

A determination of whether the interest income to be earned throughout the sixty-year period would be that of the municipality as opposed to either the cooperative or its shareholders is one of fact which can only be made taking into account all the relevant facts, including the terms of the contract which the parties are contemplating entering into.

Our preliminary thoughts are, however, that since the municipality would appear to be entitled to assume ownership of the building at the end of the sixty-year lease, in any event, by virtue of their ownership of the underlying land, the amounts in question are being held for the benefit of the co-operative and its shareholders. That being the case, it would appear that any income earned on such deposits would be the income of the co-operative. We wish to caution that the particulars of any such transaction would have to be scrutinized carefully to ensure it is not in violation of the general anti-avoidance provision found at subsection 245(2) of the Income Tax Act.

Issue 3

Given the Department's views regarding how it would likely treat the income earned on the funds provided to the municipality, we do not propose to speculate on the third question, without a further request from you, since we assume it unlikely, given these views, that the parties involved would proceed with the transaction in the manner outlined in your letter.

We trust that these comments will be of assistance.

Yours sincerely,

Murray BrakeBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch