17 January 1997 External T.I. 9635315 - ASSIGNMENT OF A HOUSING LOAN AFTER APRIL 26, 1995

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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut
ne pas représenter la position actuelle du ministère.

Principal Issues:

whether the assignment of a housing loan after April 26, 1995
that was previously exempt from inclusion under 15(2) will still
qualify for the exemption after the assignment

Position:

not likely

Reasons:

notwithstanding that the assignment will not create a new loan
unless the terms and conditions are changed, the assignment does
create an indebtedness with the corporation that accepts the

assignment. Since the description suggests that this corporation

is a holding corp, the condition in 15(2.4)(e) will not be
satisfied and the amt of indebtedness at the time of the
assignment would be included in income under 15(2) provided that
the proposed amendments are passed in substantially the same form
as proposed

A. Humenuk
XXXXXXXXXX 963531

Attention: XXXXXXXXXX

January 17, 1997

Dear Sirs:

Re: Assignment of a Shareholder Loan

We are replying to your letter of October 18, 1996, concerning the application of proposed subsection 15(2.4) to a housing loan
which is assigned to a related corporation after April 26, 1995, the date of the coming-into-force of the proposed amendments to subsection 15(2) of the Act.

You describe a situation in which a housing loan was granted to a shareholder in 1991, in circumstances under which the loan was
not required to be included in income in the year it was granted by reason of subparagraph 15(2)(a)(ii) of the Act. A corporate reorganization is now contemplated which will ultimately result in the transfer of the shareholder's 100% ownership of the shares of the corporation to the children of the present shareholder.

The outstanding loan will be assigned to a related corporation which will also be wholly-owned by the shareholder. You have asked for confirmation that the loan will continue to qualify as an exempt loan notwithstanding the proposed amendments to the shareholder loan provisions.

We do not confirm the tax implications resulting from proposed transactions except by way of an advance income tax ruling as
described in Information Circular 70-6R3 "Advance Income Tax Rulings" dated December 30, 1996. However, we are prepared to
offer the following general comments which may be of assistance to you. The comments which follow are based on the assumption that the proposed amendments to subsection 15(2) will be passed in substantially the same form as presently proposed.

Provided that the terms and conditions of a loan remain unchanged, the assignment of a housing loan to a related corporation will generally not of itself create a new loan.

However, as a result of the assignment of the loan to the related corporation, the shareholder will become indebted to that corporation as of the date of the assignment. As a result, subsection 15(2) of the Act will require the amount of the indebtedness outstanding at the time of the assignment to be included in the shareholder's income for the year in which the assignment occurs unless any of proposed subsections 15(2.3) to (2.6) apply to exempt the loan.

In determining whether any of the exceptions apply to exclude the indebtedness to the new corporation from the shareholder's
income, the terms of repayment of the assigned housing loan will be considered reasonable provided that they are unchanged from
that originally agreed upon and were considered reasonable at that time. Continued adherence to the original terms and conditions of the original housing loan constitutes the best evidence that the arrangements for repayment of the loan continue to be bona fide. However, the exception in subsection 15(2.4) of the Act will not apply to the assigned housing loan unless it is reasonable to conclude that the related corporation which subsequently holds the loan accepted the assignment because of the shareholder's employment with that corporation and not because of the shareholder's shareholdings with that corporation.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch