Dear Sirs:
Re: Question 40 of the 1990 Revenue Canada Round Table
This is in response to your letter of January 11, 1991 wherein you requested confirmation of Revenue Canada, Taxation's position as expressed in the response to Question 40 of the Revenue Canada Round Table (the "RCRT") at the 1990 Annual Conference of the Canadian Tax Foundation in November 1990.
In Question 40 of the RCRT, the Department's position was sought for the purposes of subsection 249(4) of the Income Tax Act (the "Act"), with respect to the date when control of a corporation would be acquired in each of the following two situations.
(a) A vendor owns all of the outstanding shares of a corporation. The vendor signs an agreement of sale on the 11th day of a particular month, with the transfer of title being scheduled for the first day of the next month.
(b) Alternatively, the vendor receives an offer to purchase all shares on the 10th day of the month and accepts the offer on the 15th day of that month. The offer to purchase provides for the transfer of title on the first day of the following month.
The Department's position, as expressed in the response to Question 40 of the RCRT and as indicated in your letter, is that it is a question of fact as to when control of the corporation has been acquired in circumstances such as are described above. This would normally be determined from the agreement between the vendor and the purchaser. In the situations described above, control would normally be considered to be acquired on closing, when title to the shares passes, unless the purchase and sale agreement provides otherwise. However, the purchaser of the shares may be deemed by subsection 256(8) of the Act to have acquired the shares for the purposes of subsection 249(4) of the Act, on the 11th day of the month in situation (a), and on the 15th day of the month in situation (b). Subsection 256(8) of the Act will apply in these situation if it can reasonably be concluded that one of the main purposes of the agreement made in these situations was to avoid a limitation on the deductibility of those amounts referred to in paragraph (a) of that subsection or the application of those provisions described in paragraph (b) or (c) thereof.
We trust that the above will be of assistance.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch