My question relates to the new Sec 7C of the Income Tax Act ré loans advanced to a Trust. Subsection 5 describes seven circumstances under which S7C will not apply. Specifically S7C(5)(d) indicates that if the Trust used the loan to fund the acquisition o
Important:
This answer is based on tax law for the year ending 28 February 2009.
Answer:
The requirement in section 7C(5)(d) is that trust used the loan, advance or credit “wholly or partly for purposes of funding the acquisition of the asset” (the residence in this instance). Because the acquisition was funded from the trust’s own capital, section 7C(5)(d) will not apply. We are not sure what the following statement means:
“…The capital arising from the sale of the original Primary Residence was then recorded as a loan to the Trust as reimbursement for the initial purchase of the unit in the retirement village…”
We submit that this is in fact a new, or standalone loan to the trust. It is not a replacement loan either, and we agree with you that section 7C(5)(d) will not find application here.