2 July 1991 Income Tax Severed Letter

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.

TORONTO DISTRICT OFFICE            Business and General
G. Cappella                          Division
Audit Review                       C. Tremblay
                                   952-1361
Business Enquiries
Group 148 2-1
                                   911208

SUBJECT: Use of a corporation's property by a Object: shareholder/employee

This is further to a memorandum of December 19, 1990 written by R. Mundell of our Division to G. Cappella of Audit Review of the Toronto District Office regarding 19(1)

In our reply to you, we opined that there was a 24(1)

This is still our opinion, however, we went on to discuss personal use of corporate property and the taxable benefit to the shareholders. A memorandum dated April 19, 1991, written by M. Lefebvre of Audit Applications Division indicated that we erred in our discussion of the benefit. We generally agree with the comments in that memorandum, a copy of which we have enclosed.

Generally, it is our view that the fair market rental value method should be used to determine the amount of the benefit, however, where the fair market value rental does not provide a reasonable return on the value or the cost of the property, the amount or value of the benefit being conferred on the shareholder is more indicative of the true value of the benefit when it is determined by a normal rate of return on the greater of the cost or the fair market value of the corporate asset plus the operating costs, less any consideration paid to the corporation by the shareholder. The Youngman case 90 DTC 6322 generally supports this approach, subject to reducing the amount of the benefit by an amount equal to interest that would normally be paid by the corporation on the balance of any interest free shareholder loans related to the property.

We trust our comments will be helpful and apologize for any difficulty our prior comments may have caused.

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