| 24(1) | File No. 5-9643 |
| L.A. McCarron-McGuire | |
| 19(1) | (613) 957-2092 |
June 14, 1990
Dear Sirs:
Re: Subsection 15(1) of the Income Tax Act (Canada) (the "Act")
This is in response to your letter of February 20, 1990 in which you requested our views as to the application of our administrative position concerning single purpose corporations to the hypothetical situation described herein.
It is the administrative position of Revenue Canada, Taxation not to assess a benefit under subsection 15(1) of the Act where a shareholder of a corporation uses property owned by the corporation (the "single purpose corporation") and all of the following conditions are satisfied:
1) the corporation's only objective is the holding of property for the personal use or enjoyment of the shareholder;
2) the shares of the corporation are held by an individual or person (other than a corporation) related to the individual;
3) the only transactions of the corporation relate to its objective of holding property for the personal use or enjoyment of the shareholder;
4) the shareholder is charged with all the operating expenses by the corporation, with the result that the corporation shows no profit or loss with respect to the property on any of its returns;
5) the corporation acquires the property with funds provided solely by the shareholder and not by virtue of his holdings or that of a related person in any other corporation; and
6) the property is acquired by the corporation on a fully taxable basis, i.e. without resort to the rollover provisions contained in the Act.
The hypothetical situation which you describe is that of an individual who directly holds a U.S. residential property and who proposes to transfer the property to a corporation which satisfies the requirements enumerated in paragraphs 1 through 4 above. The individual would be the only shareholder of the corporation. The consideration for the transfer would be common shares of the corporation with a fair market value equal to the value of the residential property at the time of the transfer. No to the value of the residential property at the time of the transfer. No election would be filed under subsection 85(1) of the Act such that the individual's proceeds of disposition of the residential property would be deemed by paragraph 69(1)(a) of the Act to be the fair market value thereof.
In our view, the corporation described above would ordinarily satisfy all of the requirements for the application of the single purpose corporation administrative concession and thus subsection 15(1) would not be applied to deem the individual to have received a benefit in respect of the use or enjoyment of the residential property. In particular, the issuance by the corporation of shares with a fair market value equal to the value of the residential property would ordinarily satisfy the requirement specified in paragraph 5 above.
The comments contained herein are only expressions of opinion and in accordance with the practice set out in paragraph 24 of Information Circular 70-6R are not binding on Revenue Canada, Taxation.
Yours truly,
for DirectorReorganization and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch