Prescribed property and prescribed benefits in relation to a tax shelter
There are two types of properties excluded from the definition of a tax shelter. They are flow-through shares and prescribed property.
Prescribed property in relation to a tax shelter is defined in the Income Tax Regulations section 3101 and includes property that is:
- a registered pension plan
- a registered retirement savings plan
- a deferred profit-sharing plan
- a registered retirement income fund
- a registered education savings plan
- shares of:
- prescribed venture capital corporations
- prescribed labour-sponsored venture capital corporations
- taxable Canadian corporations held in a prescribed stock savings plan
An investment in property is considered to be a tax shelter where it is reasonable to consider, based on statements or representations made or proposed to be made, that the buyer or donor will have losses, deductions, or credits within the first four years of buying an investment in the property.
Statements or representations include those made by a promoter or person associated with the promoter or their agent.
Further, it has to be reasonable to consider that the losses, deduction, or credits would be equal to or greater than the net cost of the original investment or of the property acquired under the gifting arrangement.
Prescribed benefits in respect of an interest in a tax shelter are defined in the Income Tax Regulations subsections 3100(1), 3100(2) and 3100(3), and include:
- tax credits
- revenue guarantees
- contingent liabilities
- limited-recourse amounts
- rights of exchange or conversion
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