| 19(1) | 5-9018 |
| D. Yuen | |
| (613) 957-2111 | |
| December 12, 1989 |
Dear Sirs:
Re: Qualified Small Business Corporation Share ("QSBCS")
This is in reply to your letter of October 27, 1989 in which you requested a technical interpretation concerning what constitutes qualified assets for the purpose of determining a QSBCS, as defined in subsection 110.6(1) of the Income Tax Act (the "Act") in the following hypothetical situation.
1. Holdco is a Canadian-controlled private corporation with a wholly-owned subsidiary, Opco, which is a small business corporation as defined in subsection 248(1) of the Act.
2. Holdco's only assets are shares of Opco and a loan receivable from Opco.
3. The loan to Opco is unsecured and was used in Opco's active business.
You have asked if the loan from Holdco to Opco would be viewed as an asset used in an active business carried on by Holdco for purposes of the definition of a QSBCS pursuant to subparagraph 110.6(1)(c)(i) of the Act.
As Holdco's ordinary business does not include the lending of money, the loan is not an asset used by it in an active business. As well, the loan itself was not an asset used in Opco's business, the loan proceeds became a different asset in Opco.
However, provided the loan was evidenced by a demand promissory note issued by Opco, the loan would qualify as a similar obligation for the purposes of subparagraph c(ii) of the QSBCS definition in subsection 110.6(1) of the Act.
You have also requested us to consider if a "home purchase loan", as defined in paragraph 80.4(7)(a) of the Act would be an asset used in an active business.
It is our opinion that a home purchase loan would not be an asset used in an active business unless the corporation's ordinary business activity included the lending of money and the loan was made on the same terms and conditions as other loans.
The above are our general comments which may not be applicable to a specific situation since the facts of the situation may be different. In accordance with the guidelines described in paragraph 24 of Information Circular 70-6R dated December 18, 1978, the opinions expressed do not constitute advance income tax rulings and consequently are not binding on the Department.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch