Principal Issues: [TaxInterpretations translation] Is paragraph 256(1.2)(c) relevant in determining whether a corporation is a prescribed taxable Canadian corporation as defined in the definition of "qualified corporation" in subsection 125.4(1)?
Position: No
Reasons: Section 256(1.2)(c) applies only to subsections (1), (1.1), (1.2) and (1.3) to (5) of section 256.
XXXXXXXXXX 2006-021810 Nancy Turgeon, CGA May 30, 2007
Dear Sir,
Subject: Film or video production tax credit
This is in response to your email of December 18, 2006, in which you requested a technical interpretation of the concept of "prescribed taxable Canadian corporation" in the definition of "qualified corporation" in subsection 125.4(1) of the Income Tax Act (the "Act").
Unless otherwise indicated, all statutory references herein are to provisions of the Act.
More specifically, you asked whether paragraph 256(1.2)(c) is relevant in determining whether a corporation is a prescribed Canadian corporation as defined in the definition of "qualified corporation" in subsection 125.4(1).
The situation you have indicated in your letter appears to relate to an actual situation involving a specific taxpayer. As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to issue written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
Under the definition of "qualified corporation" in subsection 125.4(1), a corporation must, inter alia, be a prescribed taxable Canadian corporation throughout the taxation year in order to be a qualified corporation. A prescribed taxable Canadian corporation is defined in subsection 1106(2) of the Income Tax Regulations (the "Regulations") as a corporation that is a Canadian (as defined in subsection 1106(1) of the Regulations). However, any corporation controlled directly or indirectly in any manner whatever by one or more persons all or part of whose taxable income is exempt from tax under Part I of the Act is not a prescribed taxable Canadian corporation.
The term "controlled, directly or indirectly in any manner whatever" is defined in subsection 256(5.1). Generally, by virtue of subsection 256(5.1 a corporation is controlled, directly or indirectly, in any manner whatever) where a corporation, person or group of persons ("the controller") has any direct or indirect influence that, if exercised, would result in control in fact of the corporation.
The preamble to subsection 256(1.2) states that it applies only for the purposes of subsections (1), (1.1), (1.2) and (1.3) to (5) of section 256. Consequently, it appears that paragraph 256(1.2)(c) is not relevant to the determination of control of a corporation for the purposes of subsection 1106(2) of the Regulations.
Under the scenario you have presented to us, notwithstanding de jure control, the determination of control in fact for the purposes of subsection 256(5.1) is obviously a question of fact that can only be determined after an examination of all the facts surrounding a particular situation. To this end, we remind you of the tests for influence set out in paragraphs 17 and following of IT64R4, including economic influence.
These opinions are not advance decisions and, as stated in paragraph 22 of Information Circular 70-6R5 of 17 May 2002, are not binding.
Best regards,
Louise J. Roy, CGA
Interim Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate