| 24(1) | File No. 900779 |
| S. Leung | |
| (613) 957-2116 |
Attention: 19(1)
June 26, 1990
Dear Sirs:
Re: Paragraph 256(1)(b) and subsection 256(2) of the Income Tax Act (the "Act")
We are writing in response to your letters of May 15 and 17, 1990 in which you requested our views on the application of the above-referenced provisions of the Act in the hypothetical situation described in your letters.
Hypothetical Situation
1. Each of Corporations A, B and C has a fiscal year which ends on December 31.
2. Individual A controls Corporation A from March 1 to July 31 of a particular year. He also controls Corporation B from September 1 to December 31 of that same year. At no other time in the taxation year does Individual A control. or is he deemed to control, directly or indirectly in any manner whatever, Corporation A or B, as the case may be. For greater certainty, Individual A does not control both Corporations A and B at the same time in the taxation year.
3. Subsection 249(4) does not apply as a result of the acquisition of control of either Corporation A or B because of an exception described in subsection 256(7) of the Act.
4. Corporation C is associated with Corporation B in the year pursuant to subsection 256(1) of the Act.
5. Corporation C, but for the possible application of subsection 256(2) of the Act, is not otherwise associated with Corporation A at any time in the taxation year.
Our Comments
It is our opinion that Corporation A and B are not associated with each other in the taxation year because both corporations are not, at some common point in time in the same taxation year, controlled directly or indirectly by Individual A.
It is also our opinion that subsection 256(2) of the Act would not apply to deem Corporations A and C to be associated with each other. Subsection 256(2) of the Act applies only if both conditions described in the preamble of that subsection are met. It is our view that the condition described in (b) of that subsection is not met because Corporation A is not associated with the third corporation, Corporation B, at any time in the taxation year. As was discussed earlier, Corporations A and B are not associated with each other at any particular time in the taxation year because they are not controlled by Individual A at the same time in the taxation year. Therefore, the condition described in (b) of subsection 256(2) of the Act would not be met and that subsection would not apply.
The above comments are our general comments on paragraph 256(1)(b) and subsection 256(2) of the Act in respect of the hypothetical situation described above. They may or may not be applicable to a particular situation. They are not rulings and in accordance with paragraph 24 of Information Circular 70-6R dated December 18, 1978 issued by Revenue Canada, Taxation, are not binding on the Department.
Nothing in this letter should be construed as implying that subsection 256(2.1) of the Act would not apply if the purpose test described in that subsection is met.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch