25 July 1989 Ministerial Correspondence 58134 F - Attribution Rules

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.

July 25, 1989

Dear Sirs:

Re:  Attribution Rules

We are responding to your letter dated May 19, 1989, in which you ask whether the repayment of a loan in kind is considered a transfer within the meaning of subsection 74.1(1) of the Income Tax Act (the Act).

In the situation you describe Mr. X makes a cash loan of $100,000 to Mrs. X on January 1, 1985. Mrs. X invests $75,000 in real property which is capital property to her and $25,000 in interest-bearing bonds. Mrs. X repays a portion of the loan with the investment income from the bonds, leaving a principal balance owing to Mr. X of $92,500. On December 31, 1987, Mrs. X repays the balance of the loan by transferring the ownership of the real property, which has increased in value to $92,500, to Mr. X. Mrs. X has not made an election under subsection 73(1) of the Act.

We are assuming for the purpose of our response that the loan from Mr. X to Mrs. X would in fact, be a genuine loan and would not constitute a transfer of property as contemplated by former section 74(1) of the Act.

In our view the making or repayment of a loan does not constitute a transfer of property. Therefore, assuming that the fair market value of the real property so transferred to Mr. X does not exceed the amount of the loan outstanding at the time it is used to repay the loan, it is our view that the conveyance of the property to Mr. X from Mrs. X would not constitute a transfer of property in the circumstance described above.

Insofar as the conveyance of real property to Mr. X is not considered a transfer it is our view that subsection 73(1) of the Act does not apply to Mrs. X whether she elects or not.  Pursuant to paragraph 69(1)(b) of the Act, Mrs. X is deemed to have received proceeds of disposition equal to the fair market value of the property.

We trust our comments will be of assistance to you.

Yours truly,

for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch