| 24(1) | 3-902698 |
| D. Palamar | |
| (613) 957-2746 |
19(1)
November 13, 1990
Dear Madam:
Re: Advance Ruling Request 24(1)
We are writing further to the above captioned ruling request and to your November 7, 1990 telephone conversation with David Palamar. We regret to advise that we are unable to provide you with the rulings you have requested because your submission did not identify a particular taxpayer who intended to enter into 24(1) As noted in paragraphs 6, 8 and 14 of Interpretation Circular 70-6R2, an advance income tax ruling can only be provided in respect of definite proposed transactions involving specifically identified taxpayers. The only exceptions to this practice occur in some cases where it is proposed that unidentified taxpayers will enter into an arrangement with an identified taxpayer pursuant to a prospectus or similar document.
Although we are unable to respond to your request in the form of an advance income tax ruling we can provide our general comments with respect to our understanding of family mortgage plans.
Our understanding is that, under these types of arrangements, a parent purchases a guaranteed investment certificate (GIC) from a financial institution. The child who is to be assisted applies to the same financial institution for a regular residential mortgage loan. The parents agree to accept a rate of interest on the GIC that is less than the going rate. The difference between the going rate and the rate selected by the parent will reduce the interest rate on the child's mortgage.
In the Department's view, subsection 56(2) and subsection 56(4) of the Income Tax Act would require the parent to include the amount of any "foregone" interest in his income. For example, consider a parent who purchased a $10,000 GIC under this type of arrangement, and agrees not to accept any interest on the deposit. Assuming the market rate of interest on GIC's was 12%, the Act would require the parent to include $1,200 in his income for the year, despite the fact that no interest will actually be paid to him. The arrangement would not ordinarily have any tax implications for the child.
You also requested that we provide you with an opinion as to whether a financial institution would be required to file an information return with respect to any foregone interest under a family mortgage arrangement i.e. whether in the above example an information return would have to be filed with respect to the $1,200 foregone by the parent. We have been advised by our Source Deductions Division that an information return should be filed which would reflect the total income that would have been earned by the parent on the GIC had the interest been calculated at the going market rate at the time the GIC was purchased.
Our comments are provided in accordance with the practice described in paragraph 24 of Information Circular 70-6R2. Your deposit will be returned to you separately.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate