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VI. Use of Property

24.A58. Special provisions need to be made regarding the permitted use (as distinct from the right to use for a fixed term which a person may be entitled to) by one person of property owned by another where the former pays inadequate consideration for such use and the use does not fall within the exemption allowed for maintenance and support provided by a taxpayer for members of his family.

24.A59. Where, under a lease or some other legally binding arrangement, an owner gives another a right to use property for a fixed term, it is possible to determine the existence of a gift at the time the lease or arrangement is made. This approach is not appropriate, however, in the case where the right to use can be determined by the owner at will or on notice. The owner of a grazing property may make a gift by allowing a relative, or a partnership in which the relative is a partner, to work the property without any charge by way of rent. A father who buys a house and allows his daughter and son-in-law to have the exclusive use of the house at a nominal rent subject to one month's notice is making a gift no different from the father who gives to his daughter money to pay the rent of a house that she and her husband have leased. Of course, many such gifts will be exempt by reason of the operation of the annual exemption of $3,000.

24.A60. In cases of this latter kind, the gift is the value of the use of the asset during the actual period of use less any amount received by the owner for that use. It should be provided, however, that a gift will be deemed to be made in each year in respect of the use during that year.

24.A61. Where the party who receives the benefit of the use of the property is unrelated to the owner of the property, such use should be excluded from the provisions. The notion of ‘related’, for this purpose, should be wide enough to cover cases where one of the parties to a transaction involving use of property is an entity such as a trust, partnership or company and a relative of the other party has an interest in that entity or where a person has an interest in an entity which is one of the parties and a relative of his has an interest in an entity which is the other party. In addition to the normal exemptions, there should be an exemption where the use of property is allowed as an ordinary act of social or family duty.

24.A62. A gift may be made by a loan of money interest-free or at a low rate of interest. Similar principles should apply to such a gift as are applied to a gift of the use of property. If the loan is for a fixed term and the rate of interest cannot be varied by the lender, it is possible to determine the existence of a gift at the time the loan is made. The amount of the gift will depend on the rate of interest charged and the commercial rate prevailing for a loan of that kind at the time the loan is made.




  ― 468 ―

24.A63. Where the amount of the loan is repayable on demand or on notice given by the lender or the interest rate can be varied by the lender on notice to the borrower, it should be provided that a gift will be deemed to be made in each year in respect of the period of that year in which the loan subsists. The amount of the gift will depend on the rate of interest in fact charged for the loan and the commercial rate prevailing during the year for a loan of that kind.

24.A64. The exemption recommended in paragraph 24.A61 should apply in relation to all loans of money as well as to the use of property.

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