A non-resident corporation owned by a non-resident individual purchases a Canadian vacation home that is available for use by that individual and family members. If no rent is paid, how would any taxable benefit relating to the use of the property be computed and what would be the tax consequences?
CRA first noted that s. 15(7) provided that s. 15(1) could apply where the corporation was non-resident, that s. 15(1.4)(c) provides that, a benefit conferred by a corporation on an individual is an s. 15(1) benefit conferred on a shareholder with whom the individual does not deal at arm’s length, and that s. 214(3)(a) deems the benefit to be a dividend paid to the non-resident shareholder for Part XIII tax purposes.
Regarding the computation of the benefit, in cases where the fair market rent did not provide a reasonable return on the value of the property, the amount of the benefit is to be determined using the imputed rent approach – which in general entailed multiplying what would generally be a normal rate of return for the non-resident corporation by the greater of the cost and fair market value of the property, and adding operating costs other than interest paid on liabilities connected with the property. CRA accepted (after referencing Youngman) that an interest-free loan by the shareholder to the corporation, that was used by the corporation to fund the acquisition of the property, may be deducted from the amount on which the rate of return was applied.