| 24(1) | 902506 |
| M.P. Sarazin | |
| (613) 957-2125 | |
| 19(1) | |
| October 19, 1990 |
Dear Sirs:
We are writing in response to your letter dated September 14, 1990 wherein you requested our opinion regarding the application of subparagraph 15(2)(a)(ii) of the Income Tax Act (Canada) (the "Act") to the following situation.
Facts
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2. 24(1)
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You are of the view that the loan as described would qualify for the exception from inclusion in the income of the taxpayer since all of the conditions present in the subparagraph 15(2)(a)(ii) of the Act are satisfied.
It appears that the interpretation you seek relates to a specific taxpayer and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Taxation. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for a particular taxpayer with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can offer the following general comments.
Whether the loan would be made to the taxpayer, an employee of Opco, to assist the taxpayer in the acquisition of a dwelling for his habitation is a question of fact which can only be determined following a review of all of the facts.
A dwelling will generally be considered to be acquired for an individuals habitation if the individual "ordinarily inhabits" the residence within the meaning of that term as set out in paragraph 9 of Interpretation Bulletin 120R3 (IT-120R3). A seasonal residence can represent "a dwelling for his habitation" even if the dwelling is located outside Canada. The Department's views concerning repairs, alterations, renovations or additions to a dwelling are expressed in paragraph 18 of IT-119R3. The demolition of an existing dwelling and the erection of a new one is generally considered as a new dwelling for the purposes of subparagraph 15(2)(a)(ii) of the Act.
It is also our view as expressed in paragraph 17 of IT-119R3 that loans made to refinance a dwelling would not qualify for the exception provided in subparagraph 15(2)(a)(ii) of the Act. The construction (interim) financing details and the reasons for the interim financing would have to be reviewed in each case to determine whether or not the purpose of the loan is to refinance the dwelling.
Whether bona fide arrangements were made at the time the housing loan was made for repayment thereof within a reasonable time is a question of fact to be determined according to the circumstances of each case. In a given situation, one of the factors the Department would consider is the normal commercial practice which would prevail in a similar situation. A mortgage agreement, signed by both Opco and the taxpayer, with a 10 year repayment period would appear to be a reasonable time frame for the repayment of a mortgage on a summer home. In cases where a loan is interest free, the taxpayer would realize a taxable benefit pursuant to section 80.4 of the Act.
The foregoing comments represent our general views with respect to the subject matter of your letter. As indicated in paragraph 21 of Information Circular 70-6R2, this is not an advance income tax ruling and is therefore not binding on the Department.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch