| June 19, 1989 | |
| TO - Legislative Affairs Directorate | FROM - Specialty Rulings |
| Directorate | |
| Mr. C.D. McDonald | D.Y. Dalphy |
| Director General | 957-2117 |
| File No. 5-7591 |
SUBJECT: "All or substantially all of the property" Excluded Property Subparagraph 95(1)(a.1)(ii) of the Income Tax Act (the "Act")
We are writing to request your assistance in obtaining the views of the Department of Finance on the above-referenced subject.
The question has arisen as to whether the appropriate standard for the 90% test - "all or substantially all of the property" - in subparagraph 95(1)(a.1)(ii) of the Act is cost or fair market value or some other measurement (e.g., fair market value of goodwill plus cost of other assets). Although it is our understanding that the definition of "small business corporation" in subsection 248(1) of the Act was amended to avoid confusion and to clarify that the appropriate standard in that subsection of the Act is fair market value, we note that the definition of "share of the capital stock of0 a family farm corporation" in paragraph 70(10)(b) of the Act was not so changed (see also, for example, paragraphs 59(3.4)(a) and 37.1(7)(c) of the Act). Accordingly, it is unclear whether it was intended that this phrase would be interpreted consistently throughout the Act. In our view, the Act would have to be amended if fair market value is to be the only standard to be used in respect of subparagraph 95(1)(a.1)(ii) of the Act.
Accordingly, your assistance in obtaining the comments of the Department of Finance and in conveying our opinion in respect of subparagraph 95(1)(a.1)(ii) of the Act would be appreciated.
R.J.L. ReadM.A. Hiltzfor Director GeneralSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch