| 19(1) | 5-8825 |
| M. Eisner | |
| (613) 957-2138 | |
| December 11, 1989 |
Dear Sirs:
This is in reply to your letter of October 6, 1989 concerning "Single Purpose Corporations" in relation to the application of subsection 15(1) of the Income Tax Act.
With respect to your enquiry, you have referred to our response to question 20 at page 606 of the 1980 Annual Tax Conference Round Table discussions regarding shareholder benefits where a residential property situated in the United States is owned by a "Single Purpose Corporation". This response indicated that no benefit would normally be assessed to a shareholder when the four conditions, which were set out therein, are met. Subsequently, a fifth condition was added which is set out below:
The corporation acquired the property with funds provided solely by the shareholders and not by virtue of his holding or that of related person in any other corporation.
As a result of that condition, the administrative position would not apply where a corporation acquired the residential property from a shareholder which involved a subsection 85(1) rollover.
You have also asked us four other questions. Questions number 2 and 4 relate to a situation where a U.S. corporation holds the residential property. Since our response at the 1980 Tax Conference was directed to a situation where the residential property was held by a Canadian corporation, the administrative position would not apply.
With respect to your third question, the Department indicated in 1980 that the corporation's only objective is the holding of property for the personal use or enjoyment of the shareholder. The rent-free use of the residential property with the shareholder's consent by persons other than the shareholder indicates that the corporation may have other purposes for its existence and was not a "Single Purpose Corporation". If this were to be the case, a benefit would be included in the shareholder's income.
In the case of your last question, the Department's administrative practice set out in 1980 indicated that the shareholder should be charged with all operating expenses. In relation to this condition, it would not make any difference if the shareholder paid the bills directly or if the shareholder funded the corporation which used the funds to pay the ongoing expenses. However, if the funding of the corporation were done in such a way that the corporation earned investment income, "the single purpose" test would not be met and the administrative practice would not apply.
As a further comment, we note that no transaction or structure that expands on our existing administrative practice will be accepted.
We trust that the above comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch