Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Current position on single purpose corporations.
Position: Administrative practice still valid as long as seven outlined conditions are met.
Reasons: Administrative practice will not be expanded to cover situations that it was not intended to cover
XXXXXXXXXX 2001-009686
November 27, 2001
Dear XXXXXXXXXX:
Re: Single Purpose Corporations
This is in reply to your facsimile letter of August 13, 2001, wherein you requested our views on the continuing status of a corporation as a "single purpose corporation" under the Canada Customs and Revenue Agency's ("CCRA") administrative practice.
In your letter you refer to a published CCRA document (#1999-0011055) that confirms that our long-standing policy allowing the use of a single purpose corporation to acquire certain U.S. real estate is still in effect as long as the seven conditions as outlined therein continue to be met (see also Q. 6.4 of the Congrès 1998 de l'Association de planification fiscale et financière). You then raised several questions involving the interpretation of some of those seven conditions.
Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R4 (IC-70-6R4) dated January 29, 2001. However, if the situation relates to a completed transaction a request for the CCRA's views must be made to your local tax services office. We can, however, offer the following general comments.
It remains a question of fact, in any particular case, as to whether or not each of the seven conditions would be met such that our administrative practice on the use of single purpose corporations would apply.
Where our administrative practice does not apply, the determination of the quantum of the benefit under subsection 15(1) of the Income Tax Act (the "Act") that may arise can only be made after a review of all of the relevant facts of that particular situation.
We have stated in the past that where each shareholder did not contribute their pro rata share of the funds required to acquire the particular U.S. residential property (either by equity or non-interest bearing loan), the corporation would not qualify as a single purpose corporation. As you know, one of the seven conditions requires the corporation that acquired the particular U.S. residential property to do so with funds provided solely by the shareholder(s) and not by virtue of the shareholder's holdings in that corporation or those of a related person in any other corporation. In addition, we have stated in the past that the attribution rules may be applied where a particular contributing shareholder acquires his/her funds from a parent, spouse or other non-arm's-length person.
Lastly, we have not yet determined what, if any, grandfathering protection may be provided if our administrative practice is eliminated. In the meantime, we are not prepared to expand our administrative practice to cover situations that were not originally intended and would caution against relying on this administrative practice where other tax planning objectives are involved.
Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R4.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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