Dear Sirs:
Re: Section 110.6 Qualified Small Business Corporation Share
This is in reply to your letter of July 31, l991 in which you requested our comments as to whether shares of a particular corporation, which apparently have been sold, qualify as qualified small business corporation shares.
In your letter you have outlined what appears to be an actual fact situation related to a completed transaction. The review of such transactions is 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. However, we can provide you with the following general comments which we hope will be of assistance to you.
In a situation where 90% of the fair market value of the assets of a corporation cannot be attributed to assets described in subparagraph (c)(i) or shares or obligations of corporations described in clause (c)(ii)(B) of the definition of "qualified small business corporation share", the 50% test in clause (c)(ii)(B) is substituted by the 90% test in respect of connected corporations. We would further add that in applying the 50% or 90% test consolidated accounting is not to be used. In this respect, we refer you to Bill C-18 tabled on May 28, 1991 and new subsection 248(24) contained therein.
The foregoing comments are given in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch