Principal Issue:
Whether a corporation, which does not otherwise qualify as a public corporation under paragraph b) or c) of the definition of “public corporation” in subsection 89(1) of the Act, the only class of shares of the capital stock of which is tradable over-the-counter on the XXXXXXXXXX , is a public corporation under paragraph a) of the definition of “public corporation” in subsection 89(1) of the Act?
Position:
No.
Reasons:
No class of shares of the corporation is listed on a prescribed stock exchange in Canada.
May 24, 2000
Quebec Tax Services Office Headquarters
Corporate Reorganizations and
International Operations Section
Attention: Mr. Jean Valois
Fouad Daaboul
(613) 957-20532000-001404
XXXXXXXXXX
Public corporation and shares listed as over-the-counter securities on the Toronto Stock Exchange
This is in response to your memo of March 10, 2000 and to our telephone conversation (Kirk/Daaboul) in which you asked for our opinion on the subject of the situation described below.
QUESTION
You asked for our opinion as to whether, for the purposes of paragraph (a) of the definition of “public corporation” in subsection 89(1) of the Income Tax Act (the “Act”), the XXXXXXXXXX corporation (the “corporation”), the only class of whose shares of capital stock is listed as a security on the XXXXXXXXXX (“Over-the-Counter”) XXXXXXXXXX, would be considered a public corporation. You stated that paragraphs (b) and (c) of the definition of “public corporation” in subsection 89(1) would not otherwise apply in this situation.
YOUR COMMENTS AND THOSE OF THE TAXPAYER
You indicated in your request that, according to the officers and representatives of the “corporation”, it is considered to be a Canadian-controlled private corporation following the comments provided in our document number E9209005 dated May 11, 1992, in which reference was made to paragraph 4 of Interpretation Bulletin IT-391 dated August 29, 1977. This paragraph reads as follows: [TaxInterpretations translation]
If a corporation is not otherwise a public corporation, trading a class of its shares “over-the-counter” does not make it a public corporation by virtue of subparagraph 89(1)(g)(i), which provides that the shares must be listed on a prescribed stock exchange in Canada.
You stated that Interpretation Bulletin IT-391 has been cancelled and replaced by Interpretation Bulletin IT-391R, dated September 14, 1992, and that the concept of “over-the-counter” has disappeared.
OUR COMMENTS
Paragraph (a) of the definition of “public corporation” in subsection 89(1) provides that a corporation is considered, at any time, to be a public corporation if at that time a class of shares of the capital stock of the corporation is listed on a prescribed stock exchange in Canada.
For the purposes, among others, of section 89 of the Act, section 3200 of the Income Tax Regulations (the “Regulations”) provides that XXXXXXXXXX XXXXXXXXXX is not a stock exchange in Canada referred to in section 3200 of the Regulations but rather a capital market.
XXXXXXXXXX
We understand that, in general, where the intermediary is a stock exchange, the class of shares is said to be listed on an exchange (i.e. “Listed”), and where the intermediary is a marketplace, the class is said to be “Over-the-Counter” (i.e. “Over-the-Counter” or “Unlisted”). Thus, where a class of the capital stock of a corporation trades “Over-the-Counter”, through XXXXXXXXXX, we are of the view that the class is not listed on a prescribed stock exchange in Canada.
Since, in the present situation, the class of the capital stock of the “Corporation” trades “over-the-counter” through XXXXXXXXXX, we are of the view that it is therefore not listed on the XXXXXXXXXX and that consequently, for the purposes of paragraph (a) of the definition of “public corporation” in subsection 89(1) of the Act, the “Corporation” would not constitute a public corporation.
For your information, a copy of this memorandum will be severed using the Access to Information Act and will be available in the Legislative Access Database (LAD) located on the mainframe of the Canada Customs and Revenue Agency. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the Legislative Access Bank version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy that has been severed in accordance with the Privacy Act will be sent to you for delivery to the client.
Should you require any additional information concerning this document, please do not hesitate to contact us.
Best regards,
Maurice Bisson, CGA
for the Director
Corporate Reorganizations and
International Operations Division
Income Tax Rulings Directorate
Policy and Legislation Branch