Principal Issues: Whether paragraphs 256(6.1)(a) and 256(7)(d) apply in a given situation in such a way as to not cause the acquisition of control of Opco.
Position: General comments provided.
Reasons: Wording of the Act and previous positions.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2010
Question 25
Acquisition of control
Opco was a public corporation within the meaning of the Income Tax Act from the time that one of the classes of shares of its capital stock was listed on a stock exchange.
The only issued and outstanding shares of the capital stock of Opco were of the class listed on the Exchange.
No person, or group of persons not dealing with each other at arm's length, controlled Opco or beneficially owned Opco shares having an FMV equaling more than 50% of the FMV of all issued and outstanding shares of the capital stock of Opco.
A new corporation ("Newco") was incorporated and Opco subscribed for 100 Class A shares of Newco for a total consideration of $100.
Opco declared a dividend in kind of $100 to its shareholders and paid that dividend by transferring to those shareholders the shares it held in Newco.
The shareholders of Opco transferred 90% of their shares of Opco to Newco in exchange for a total of 100 common shares of Newco.
Paragraph 256(6.1)(a) provides that a corporation is deemed to be controlled both by its parent corporation and by the person or group of persons that controls the parent corporation.
Paragraph 256(7)(d), for its part, provides that where a person or a group of persons controls a particular corporation, that particular corporation shall be deemed not to be the subject of an acquisition of control solely because shares of the capital stock of the particular corporation are disposed of to another corporation controlled by the same person or group of persons.
Please confirm that, when applied to the shares described above, the provisions of the Income Tax Act referred to above will not result in an acquisition of control of Opco for the purposes of the Income Tax Act.
CRA Response
Due to the fact that the wording of this question only briefly describes a particular situation, it is difficult for us to answer precisely the question submitted. Specifically, the statement of the question does not mention, for example, any provision of the Act that could apply in the event of an acquisition of control of Opco. However, we can offer the following general comments.
With respect to subsection 256(6.1), this is the legislative response to the Federal Court of Appeal decision in Parthenon Investments Limited v. M.N.R., 97 DTC 5343. Briefly, one of the purposes of subsection 256(6.1) is to take into account, for the purpose of the application of the law, the simultaneous control of a corporation at different levels.
Paragraph 256(7)(d) is a relieving provision that has the effect, where the conditions of application are satisfied, of deeming the control of a corporation as having not been acquired.
Finally, the question of whether a person or group of persons has acquired control of a corporation is a question of fact that can only be resolved after having analyzed all the relevant facts relating to the particular situation.
Jean Lafrenière
(613) 941-2956
October 8, 2010
2010-037324.