| 19(1) | File No. 5-9060 |
| M. Eisner | |
| (613) 957-2138 |
February 2, 1990
Dear Sirs:
This is in reply to your letter of November 8, 1989 concerning connected corporations in relation to the definition of "small business corporation" in subsection 248(1) of the Income Tax Act.
In your letter you have outlined an actual fact situation related to a past transaction. As the review of such transactions falls within the responsibility of District Taxation Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known, we are unable to comment thereon. However, we are provided you with the following general comments which we hope will be of assistance to you.
In determining whether one corporation is connected with another corporation under subsection 186(4) for the purposes of the small business corporation definition, it is our view that the provisions of subsection 186(2) are applicable. Under this provision, a payer corporation is connected with the particular corporation where more than 50% of the issued shares having full voting rights under all circumstances belongs to the particular corporation, to persons with whom the particular corporation and does not deal at arm's length. Where the payer corporation is not connected with the particular corporation by virtue of subsection 186(2) and paragraph 186(4)(a) particular corporation does not satisfy the test in paragraph 186(4)(b), the payer corporation would not be connected to the particular corporation for the purposes of paragraph (b) of the definition of small business corporation in subsection 248(1).
We trust you will find the foregoing satisfactory.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch