| 24(1) | 901527 |
| L.A. McCarron-McGuire | |
| (613) 957-2092 | |
| Attention: 19(1) | EACC9250 |
August 28, 1990
Dear Sirs:
Re: Request for Technical Interpretation Qualified Small Business Corporation Shares
We are writing in response to your letter, dated July 6, 1990, in which you requested our views concerning the following hypothetical situation:
1. Four doctors, Doctors A, B, C and D, are owners, as tenants-in-common, of land and a building (the "Clinic").
2. Each of the doctors has incorporated his practice so that there are four professional corporations A Co., B Co., C Co., and D Co., (collectively, the "Professional Corporations").
3. The Professional Corporations carry on their professional practice businesses in the Clinic and the Clinic is not used for any other purpose.
4. The shares of each of the Professional Corporations qualify as qualified small business corporation shares as defined in subsection 110.6(1) of the Act ("QSBC" Shares).
5. For reasons of limiting his personal liability, each doctor has determined to transfer his interest in the Clinic to a corporation. For these purposes, four new corporations, AA Co., BB Co., CC Co., and DD Co., (collectively, the "Land Corporations") will be incorporated and each doctor will transfer his interest in the Clinic to his respective Land Corporation pursuant to subsection 85(1) of the Act.
6. A Co. and AA Co. will be related corporations, B Co. and BB Co. will be related corporations, C Co. and CC Co. will be related corporations and D Co. and DD Co. will be related corporations.
7. For purposes of qualifying the shares of each Land Corporation as QSBC Shares, the Land Corporations will enter into a Co-owners Agreement which will provide:
(a) that each Land Corporation (for example, AA Co.) will only be entitled to the use and occupation of that portion of the Clinic which is used by the related Professional Corporation (for example, A Co.) to carry out its professional practice business; and
(b) that with respect to other incidents of ownership of the Clinic (for example, sharing in any gain that may ultimately arise on the sale of the Clinic or sharing in any expenses such as property tax related to the Clinic), the Land Corporations will be treated as equal owners of the Clinic.
You have asked for our views on the following:
1. Will the entering into of the Co-owners Agreement by a Land Corporation comprise a disposition by the Land Corporation of its interest in the Clinic?
2. Will the right of a Land Corporation to the use and occupation of a portion of the Clinic as created by the Co-owners Agreement comprise an asset of the Land Corporation used in an active business carried on by a corporation related to it?
Our comments:
We have not previously been asked to consider an arrangement such as the one described above in the context of a request for an advance income tax ruling and consequently we do not have an established position on the issues raised.
In order to address the issues raised, we would require all of the relevant facts of the situation and it is likely that we would have to request a legal opinion regarding various aspects of the transactions. It is not our practice to request a legal opinion in connection with a technical interpretation request.
It appears that your request relates to a specific proposed transaction. If this is the case, we suggest that you redraft your request in the form of an advance income tax ruling, in the manner outlined in Information Circular 70-6R, dated December 18, 1978.
Yours truly,
for DirectorReorganizations and Non-resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch