15 January 2003 External T.I. 2002-0147325 - Attribution - Indirect Transfer

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether an individual is considered to have made a transfer or loan, directly or indirectly, to a corporation for the purposes of subsection 74.4(2)?

Position: Generally, no, in the circumstances described.

Reasons: An indirect transfer or loan of property by the individual would generally involve some transfer or loan of property by the individual or a diminution of his interest in property (based on reasoning such as was found in the Kieboom case). An indirect transfer or loan of property does not appear to be made by an individual who controls a corporation in circumstances where the corporation merely transfers internally generated property or makes a loan of such property to another corporation and no related transfer or loan of property is made by the individual to the transferor corporation.

2002-014732
XXXXXXXXXX Marc Edelson
(613) 957-2123
January 15, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Corporate Attribution, Subsection 74.4(2)

We are writing in reply to your letter of June 10, 2002 wherein you requested that we clarify comments we made in an earlier technical opinion, document 940115, concerning the application of subsection 74.4(2) of the Income Tax Act (Canada) (all further statutory references in this letter are to the Act unless otherwise stated). In that document we stated:

"Thus, subsection 74.4(2) of the Act would not be applicable where a corporation, as opposed to an individual, has transferred or loaned property to another corporation; unless, of course, an individual may be said to have indirectly transferred or loaned property to the other corporation or where subsection 74.5(6) of the Act is applicable."

[Emphasis added by underlining.]

More specifically, you have asked whether we consider that an individual could be viewed as having transferred property to a corporation "indirectly" in circumstances where the individual, by reason of his control of a particular corporation, causes the particular corporation to make a transfer or loan to a second corporation of property that the particular corporation generated from its operations and where no other transfers or loans to the particular corporation have been made by the individual.

Your requests appear to relate to proposed transactions or completed transactions. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 ("IC-70-6R5") dated May 17, 2002. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. We can, however, provide the following general comments.

We are unable to comment on all situations that could arise involving a transfer or loan of property, indirectly, by an individual to a corporation. However, generally speaking, in situations where a controlling shareholder / director of a particular corporation approves a transfer or loan of property by the particular corporation to another corporation and the property transferred or loaned may be considered to come from the particular corporation's retained earnings (for example, internally generated cash or investments of the particular corporation) such that the property would not represent property paid or transferred to the particular corporation, directly or indirectly, by the individual, it is our view that the transfer or loan of property to the other corporation would not be considered to have been made, indirectly, by the individual for the purposes of subsection 74.4(2) of the Act.

The foregoing does not express any opinion regarding the possible application of other provisions contained in the Act to the situation described.

Our comments are provided in accordance with the practice outlined in paragraph 22 of IC-70-6R5.

Yours truly,

for Director
International and Trust Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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