27 August 1990 Income Tax Severed Letter ACC9263 - Ownership by Single Purpose Corporation of Two Properties

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.

24(1)
                                      901142
                                      W.P.Guglich
                                      (613) 957-2102

19(1)

AUGUST 27, 1990

Dear Sirs:

This is in reply to your letter of June 8, 1990 concerning the ownership by a single purpose corporation (SPC) of two properties. We offer the following comments regarding your various questions.

I.        Our response to Question 14 of the 1985 Conference
          Report, Revenue Canada Round Table confirmed our position 
          regarding the holding of personal use property by a SPC, 
          as stated in Question 20 of the 1980 Conference Report  
          and added a fifth condition that the funds for the     
          purchase of the property must be provided by the        
          shareholder.  Ordinarily the source of the              
          shareholder's funds would not be a consideration.
          However, the Department's administrative position does
          not contemplate the situation where the shareholder has 
          obtained an undue tax benefit by means of combining that 
          position with any statutory provision. In the case of an 
          interest free loan to the shareholder from an operating 
          company, it appears section 80.4 would include an
          interest benefit in the shareholder's income, in which
          case the shareholder's source of funds would not be a   
          consideration.

2.        The Department's administrative position contemplates the 
          holding of only  one residential property by the SPC for 
          the personal enjoyment of the shareholder. The purchase
          of a second property by the SPC would exceed the
          Department's guidelines. At this time the Department is
          not prepared to  extend its administrative position.
          Where the period during which two properties are held by
          the SPC is short the amount of the benefit may not be
          material.

3.        The SPC would not exceed the Department's "one property 
          guideline" if it sold the first property and subsequently 
          acquired another property providing this did not indicate 
          a pattern of buying and selling properties which would be 
          contrary to the SPC's objective of holding the property 
          for the personal enjoyment of the shareholder.

4.        The Department's administrative position does not       
          contemplate the situation of a taxpayer having two SPCs 
          with each holding a separate personal use property.

5.        A newly incorporated SPC which purchases personal use   
          property from another corporation (which no longer      
          qualifies) could qualify for the Department's         
          administrative position provided the guidelines are     
          otherwise met. 

6.        As stated above the Department's administrative position 
          does not contemplate the ownership of two properties.   
          Whether the SPC qualified for the administrative position
          prior to the acquisition of the second property could
          only be determined after all the facts and details have
          been established and reviewed.

7.        The fact that the second property in your hypothetical  
          situation was not available for occupancy for a period of
          time may (depending on the specific details of the case) 
          be relevant in determining the amount of the benefit.   
          Furthermore the Department accepts the findings in the 
          case of Youngman v. The Queen 
90 DTC 6322 that in
          determining the amount of the benefit the shareholder's 
          interest free loan to the corporation to enable it to   
          purchase the property should be taken into consideration. 
          However the interest free loan is not relevant in       
          determining whether or not there is a benefit. Ordinarily 
          the fair market rent value method should be used to     
          determine the amount of the benefit. The actual         
          expenditure method was used in the Youngman case as there 
          was no comparable house on the market in the area.

We trust our comments will be of assistance to you.

Yours truly

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch