| 19(1) | File No. 5-9367 |
| D. Yuen | |
| (613) 957-2111 |
February 6, 1990
Dear Sirs:
Re: Subsection 256(6) of the Income Tax Act (Canada) (the "Act")
We are writing in response to your letter of January 5, 1990 in which you requested a technical interpretation of subsection 256(6) of the Act in the following situation.
1. The issued and outstanding voting common shares of a Canadian corporation ("Canco") are owned 50% by an individual and 50% by four public corporations (the "Pubcos"). Canadian corporation, individual and public corporation have the meanings described in paragraph 89(1)(a), subsection 248(1) and paragraph 89(1)(g) of the Act respectively.
2. The individual and the Pubcos are not related persons as defined in subsection 251(2) of the Act.
3. All of the issued and outstanding redeemable, non-voting preference shares of Canco are held by the Pubcos. As the conditions precedent to the redemption have been attained, it is anticipated that a redemption of the preferred shares will soon occur.
4. There exists a shareholders' agreement among the individual and Pubcos which provides that, while the preference shares of Canco are outstanding, the Pubcos will control Canco's board of directors. Once the preference shares are redeemed, the individual will have control of the board of directors of Canco.
This agreement intends to safeguard the rights of the Pubcos regarding the redemption of the preference shares.
You have requested our views on whether subsection 256(6) of the Act applies in this situation and whether the word "person", as it appears in the preamble of that subsection, would include "persons" in this situation.
Comments
To the extent that the above facts represent actual proposed transactions, your enquiry should be the subject of a request for an advance income tax ruling. However, generally we would expect the provisions of subsection 256(6) of the Act to apply to the type of situation described above. As well, the reference to person in that provision would also include persons.
The comments expressed are not advance income tax rulings and are not considered binding on the Department in respect of any taxpayers in accordance with paragraph 24 of Information Circular 70-6R dated December 18, 1978.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch