| 19(1) | File No. 5-9271 |
| Firoz Ahmed | |
| 957-2092 |
February 1, 1990
Dear Sirs:
Re: Definition of Qualified Small Business Corporation Share ("QSBC Share")
This is in response to your letter of December 13, 1989 in which you requested our interpretation of the definition of QSBC Share contained in subsection 110.6(1) of the Income Tax Act (Canada) (the "Act").
In particular, you inquired whether an "open" receivable owing to one corporation (X Co) from another corporation (Y Co) connected with the first corporation would be a "similar obligation " as that expression is used in subparagraph (c)(ii) of the definition of QSBC Share and paragraph (b) of the definition of "small business corporation" in subsection 248(1) of the Act. You have informed us that an "open" receivable is an intercompany account that did not arise by virtue of the sale of goods or provision of services by X Co to Y Co and is not evidenced in writing.
In our opinion, the phrase "similar obligation" must be interpreted with reference to the words "a bond, debenture, bill note, mortgage, hypothec" which immediately precede it in the relevant definitions. Each of the debt instruments referred to above is one which is evidenced in writing and thus an "open" receivable, as described above, would not be a "similar obligation" for purposes of subparagraph (c)(ii) of the definition of a small business corporation.
We note that if the "open" receivable were subsequently evidenced in writing before the determination time, within the meaning of the definition of QSBC Share, it would be a note or a similar obligation described in paragraph (c)(ii) of the definition of QSBC Share and paragraph (b) of the definition of small business corporation from the time it is evidenced in writing. It would not, however, be a "similar obligation" for purposes of applying subparagraph (c)(ii) before that time.
The comments contained herein are expressions of opinion given in accordance with paragraph 24 of Information Circular 70-6R and do not constitute an advance income tax ruling.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch