| 19(1) | File No. 5-8501 |
| M. Vallée | |
| (613) 957-2093 |
November 2, 1989
Dear Sirs:
Re: Subsection 129(6) of the Income Tax Act Technical Interpretation
This is in reply to your letter dated August 3, 1989, wherein you requested our opinion in relation to the interpretation of subsection 129(6) of the Income Tax Act (the "Act") in the following hypothetical situation.
Corporation A, Corporation B and Corporation C are all Canadian-controlled private corporations. Corporation A earns income from an active business carried on by it in Canada, in a building leased from Corporation B. Corporation A and Corporation B are not otherwise associated with each other. Corporation C, however, is associated with each of Corporation A and Corporation B. Therefore, the three corporations would be associated unless the election in subsection 256(2) of the Act were made by Corporation C.
You are requesting our opinion as to whether the provisions of subsection 129(6) of the Act would still apply to the rent received by Corporation B from Corporation A, although Corporation C elected under subsection 256(2) of the Act not to be associated with either of Corporation A or B.
Subsection 256(2) of the Act provides that where two corporations are associated or are deemed to be associated with a third corporation, they shall, for the purposes of the Act, be deemed to be associated with each other. The third corporation may, for the purposes of section 125 of the Act, elect not to be associated with the other two corporations.
Paragraph 129(6)(b) of the Act provides that rental income paid or payable by a corporation to a corporation with which it is associated shall be deemed to be income from an active business of the recipient corporation for the purposes of section 125 and subsection 129(6) of the Act.
We are of the opinion that income received by a corporation under circumstances described in paragraph 129(6)(b) of the Act will be deemed, by virtue of that provision and for the purposes of subsection 129(6) of the Act, to be income from an active business carried on by it in Canada, notwithstanding the fact that the corporation has elected, by virtue of subsection 256(2) of the Act, not to be associated with the corporation from which it receives the payment, since that election is valid only for the purposes of section 125 of the Act.
As explained in paragraph 24 of Information Circular 70-6R, any written or verbal opinions are not rulings and are not binding upon Revenue Canada, Taxation in respect of any taxpayer.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch