September 24, 1990
| Mr. R.A. Short | |
| General Director | |
| Tax Policy and Legislation Branch | BY HAND |
| Department of Finance | |
| 140 O'Connor Street | Wm. R. McColm |
| L'Esplanade Laurier | 957-2068 |
| 16th Floor, East Tower | I-3897 |
| Ottawa, Ontario |
Dear Al:
Re: Subsection 256(6)
Our Rulings Division has asked us to inquire if a fact situation in respect of which they are being asked to give an advance ruling is intended to come within the provisions of subsection 256(6) of the Income Tax Act.
The normal situation that is envisaged with respect to subsection 256(6) is where a creditor holds as security shares of a subsidiary of the debtor which are returned upon payment in full of the debt. In the fact situation being considered by Rulings, 24(1)
Rulings are of the view that subsection 256(6) was not intended to apply to this fact situation. 24(1) Another view of the circumstances 24(1) 24(1) In these arrangements, the debtor always has the right to retrieve the security advanced for the loan. Normally this occurs when the debtor makes payment in full. However, the security may be returned for a variety of other reasons, such as on only a partial payment.
For your information we have attached a copy of the memo received from Rulings in this regard.
As the taxpayers are most anxious to resolve this issue before the end of September, we would appreciate receiving at your earliest convenience your views from a tax policy perspective on whether the situation at hand should come within the provisions of subsection 256(6).
Yours sincerely,
R.G. D'AurelioDirectorCurrent Amendments andRegulations Division
Attachment