Dear Sir:
Re: Winding-Up - Subsection 88(2)
We are writing in response to your letter, dated July 9, 1991, in which you request an opinion as to whether, upon the winding-up of a corporation, certain commissions that are said not to be receivable until after the time of the winding-up of the corporation would become taxable in full to the corporation prior to the distribution of all of the corporation's property to its sole shareholder who, from the contents of your letter, would appear to be an individual. You have also inquired as to whether subsection 69(5) of the Income Tax Act ("the Act") would cause the commissions to be taxed as a capital gain.
As your inquiry relates to a particular fact situation, we must draw your attention to Information Circular 70-6R2, dated September 28, 1990, which states that when a requested interpretation of specific provisions of the law relates to a contemplated transaction, a taxpayer should request an advance ruling rather than an opinion.
Given the lack of information in your letter, it is not possible for us to form any opinion as to whether the Canadian-controlled private corporation referred to therein possesses an unconditional right to receive any amount in respect of the commissions. Before any conclusion could be reached in this regard, it would be necessary to examine the terms of the contract between the corporation and its customers.
However, in very general terms, a commission does not become "income" under section 9 of the Act until the right to the commission becomes absolute and the taxpayer is under no restriction, contractual or otherwise, as to its disposition, use or enjoyment. Furthermore, amounts are not "receivable" until there exists an unconditional (albeit not necessarily immediate) right to their receipt.
If the commissions have not become receivable before they are distributed to the shareholder on the winding-up, paragraph 69(5)(a) may apply to deem the corporation to have sold the right to the commissions for fair market value. An amount equal to the fair market value of the right to the commissions would then be included in computing the corporation's income.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch