essay - T opic - Tax Avoidance Facts John and Kristy sold their family home at market value to a look-through company (LTC); The home is used by the LTC as a rental asset and is rented to John and...

SOLUTION:
Part –G of the Income tax Act, 2007 deals with avoidance and non-market transactions. Yes,
there has been tax avoidance being done by John and Kristy by transfe
ing there Family home to
Look-Through-Company, in which they were having 100% shares, and also they are paying rent
to the company on the market basis. They are claiming interest paid to the bank on the loan of
$3, 00,000 bo
owed in purchasing the new investment property.
This case will not be covered under Subpart GC-5 because the rent John and Kristy are paying to
Look-Through Company is on market basis, whereas the subpart deals with leases in inadequate
ent. The tax avoidance practice performed by John & Kristy is covered under Sub part GB45,
46, 47 and 48
i
. They are paying rent to Look Through Company of which they are 100%
shareholders, hence rent paid by them is just an a
angement of the transfe
ing income from one
person to another rather we can classify it as a dummy transaction. The amount of interest paid to
the bank will also be disallowed as the loan is taken in financing the new property, by
guarantying the old property which is owned by the company, hence interest payments on such
loan will be completely disallowed from the income of John and Kristy. The law relating to such
transactions is already framed and reads as follows:
Sub part GB45- A
angements involving money not a risk reads as follows:a person sells or
issues, or promotes the selling or issuing of, the a
angement, whether or not for remuneration;
and a person (the participant) who is a party to the a
angement or affected by it, considered
together with their affected associates, has for an assessment period a total amount of deductions
from the a
angement that is more than their total amount of assessable income from the
a
angement, having regard to the rules in subsection (2); and as part of or for the purposes of the
a
angement, the participant or an affected associate bo
ows a limited-recourse amount under a
limited-recourse loan; and on the relevant balance date, the total...