20 February 1998 Income Tax Severed Letter 9802875 - Single purpose corporation

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.

SUMMARY: Single purpose corporation—ITA-15(1)—Administrative policy regarding “single purpose corporations” used for the purpose of holding personal-use real estate including discussion of potential changes as a result of recent amendments to Article XXIX B of the Canada-United States Income Tax Convention.

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.

980287 XXXXXXXXXX T. Harris

Attention: XXXXXXXXXX

February 20, 1998

Dear Sirs:

Re: Single Purpose Corporation to Hold Canadian Real Estate

We are writing in response to your letter of January 30, 1998 wherein you requested clarification of the Department's administrative policy regarding "single purpose corporations" for the purpose of holding personal-use real estate.

The Department's administrative position which is described in our responses to Questions 20, 14 and 9 at the 1980, 1985, and 1989 Revenue Canada Round Tables, respectively, was developed in response to United States estate tax legislation and was implemented with the sole objective of facilitating the holding of residential real property located in the United States by a Canadian corporation for the occupancy of the corporation's shareholders. This administrative position does not extend to a corporation which holds Canadian real estate or any other property. In addition, in response to question 9 of the 1989 Revenue Canada Round Table, the Department advised that the U.S. real estate must be acquired by the corporation on a fully taxable basis (that is, without the use of any of the rollover provisions of the Act). Consequently, the situation referred to in your letter would not comply with the Department' administrative position such that, to the extent that a benefit may be considered to have been conferred on the shareholder, such benefit would be included in the shareholder's income under subsection 15(1) of the Income Tax Act.

In light of the amendments to Article XXIX B of the Canada-United States Income Tax Convention which resolve many of the problems that confronted Canadian residents who owned or were contemplating the acquisition of personal use real property situated in the United States, the Department is reconsidering its administrative position with respect to such single purpose corporations. Once the Department has completed its review , the results will be published in the Income Tax Technical News.

Yours truly,

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