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.
Dear Sirs:
Re: Application of Subparagraph 15(2)(a)(ii) of theIncome Tax Act(the “Act”)
This is in reply to your letter of October 16, 1990, whereby you request our opinion in respect of the application of subparagraph 15(2)(a)(ii) of the Act to the following hypothetical situation:
- 1. Mr. A, a resident of Canada, owns all the shares of A Company which carries on business in Canada.
- 2. Mr. A is an employee of A Company.
- 3. Mr. A currently owns a lot on which he wishes to build a new dwelling for his habitation.
- 4. Mr. A will have to demolish the existing house on the lot.
- 5. Mr. A lives in the existing house on the lot.
- 6. A Company will lend Mr. A the funds to build the new home.
You request our opinion as to whether the loan from A Company to Mr. A to build the new house qualifies as an exempt loan under subparagraph 15(2)(a)(ii) of the Act.
Please note that the Department does not provide opinions pertaining to a proposed transaction otherwise than by way of an advance income tax ruling. However, we can provide you with the following general comments.
The exception provided for in subparagraph 15(2)(a)(ii) of the Act pertains to a situation where a loan is granted to an employee of the lender to assist him to acquire a dwelling for his habitation.
As indicated in paragraph 18 of IT-119R3, loans made or indebtedness arising in respect of repairs, alterations, renovations, or additions made to a dwelling are not considered to qualify for the exception under subparagraph 15(2)(a)(ii) of the Act. However, the demolition of an existing dwelling and the erection of a new one cannot be considered to be an addition to a dwelling, since the former dwelling no longer exists. Consequently, the Department considers that the requirements enunciated in subparagraph 15(2)(ii) of the Act are fulfilled and the loan qualifies as an exempt loan. Of course, this assumes that the loan satisfies all the other requirements at its inception is bona fide and is repaid within a reasonable period of time.
The above comments are only expressions of opinion on the application of theIncome Tax Actto the hypothetical example given and as such should not be construed as advance income tax rulings, nor are they binding on the Department.
We trust our comments will be of assistance.
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© Her Majesty the Queen in Right of Canada, 1990
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© Sa Majesté la Reine du Chef du Canada, 1990
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