14 November 1990 External T.I. 901700 F - Election in respect of the Disposition of Shares of a Foreign Affiliate

19(1)

November 14, 1990

Dear Sirs:

Re:  Election under Subsection 93(1)

This is in reply to your letter dated July 23, 1990 whereby you requested our comments on the application of subsection 93(1) of the Income Tax Act in respect of the following hypothetical situations:

1.     a corporation (the "Taxpayer") disposes of its shares of a foreign affiliate (that is not a controlled foreign affiliate) which is a public corporation (the "Foreign Affiliate") through an agency relationship with a sock broker whereby the Taxpayer is technically selling the shares in small lots (i.e. a different sale is concluded for each trade the broker closes);

2.     the Taxpayer sells its shares of the Foreign Affiliate to more than one stock broker by a so-called bought deal, i.e. the shares are sold at a fixed price to the stock brokers who are acting as principals in purchasing the shares.

As indicated by you, an election under subsection 93(1) is only available in respect of the disposition of shares of a foreign affiliate and a foreign affiliate is defined by paragraph 95(1)(b) to be a corporation (other than a corporation resident in Canada) in which at the time, the taxpayer's equity percentage was not less than 10%.

Accordingly, in our opinion, if at the time of a sale of shares of a corporation the taxpayer's equity percentage therein is less than 10%, such corporation could not be a foreign affiliate of the taxpayer and the taxpayer would not be permitted to make an election under subsection 93(1) in respect of such sale. The time at which a disposition occurs and the amount, if any, of a taxpayer's equity percentage in a non-resident corporation at any particular time are essentially questions of fact. In order to assure that the Taxpayer will be permitted to make an election under subsection 93(1) in respect of all of its shares of the Foreign Affiliate, it would be advisable that the Taxpayer arrange to dispose of all such shares at the same time as one transaction.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch