Principal Issues: Is a deemed disposition upon emigration under paragraph 128.1(4)(b) considered to be a disposition that would result in the loss of grandfathered status relating to the single purpose corporation administrative position as outlined in ITTN-31R2?
Position: yes
Reasons: The application of paragraph 128.1(4)(b) would be considered a disposition of the shares of the SPC under the Act
XXXXXXXXXX 2011-042697 W. Doiron
February 16, 2012
Dear XXXXXXXXXX :
Re: Single Purpose Corporation Administration Policy with respect to a deemed disposition
This letter is in response to your email in which you request whether a deemed disposition upon emigration under paragraph 128.1(4)(b) of the Income Tax Act (the "Act") would be considered to be a disposition that would result in the loss of grandfathered status relating to the single purpose corporation ("SPC") administrative position as outlined in Income Tax Technical News #31R2 ("ITTN-31R2")?
In the scenario described in your submission, the SPC has been in existence since the 1980s, it is wholly-owned by one individual, the real estate held by the SPC is in the United States, and all of the conditions of the administrative position were met when the structure was put into place and continue to be met until the date of emigration from Canada.
General comments
On June 22, 2004, the CRA announced the withdrawal of its administrative policy and began to assess a taxable benefit against shareholders' personal use of SPC-owned real estate. The CRA stated that the impetus for the change in administrative policy is its position that the US estate tax problems applicable to Canadian residents who held US personal use real property were generally resolved by the amendments to the Canada-United States Income Tax Convention. ITTN-31R2 states in part:
"Consequently, subject to the transitional relief described below, effective after December 31, 2004, this administrative policy will no longer apply for:
- any new property acquired by a single-purpose corporation, or
- a person who acquires shares of a single-purpose corporation unless such share acquisition is the result of the death of the individual's spouse or common-law partner.
The administrative policy will continue to apply to those arrangements that are currently in place until the earlier of:
- the disposition of the particular U.S.-based real estate by the single-purpose corporation; or
- a disposition of the shares of the single-purpose corporation, other than a transfer of such shares to the shareholder's spouse or common-law partner as a result of the death of the shareholder."
In our view, the deemed disposition of shares of the SPC under paragraph 128.1(4)(b) would constitute a disposition of shares by the taxpayer, for purposes of our administrative policy. Accordingly, the administrative policy, as described in ITTN#31R2 would cease to apply to the taxpayer on the date of emigration from Canada.
We trust these comments will be of some assistance.
Yours truly,
Lita Krantz
Assistant Director
International Division/ Division des opérations internationales
International Section III
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch