| 24(1) | 5-9147 |
| O. Laurikainen | |
| (613) 957-2129 | |
| Attention: 19(1) |
August 14, 1990
Dear Sirs:
Re: Controlled Foreign Affiliates
This is in response to your letter of November 23, 1989. You enquired whether a non-resident person could have a foreign affiliate for the purposes of the Income Tax Act (the "Act"). Your enquiry provides an example where:
1. A person immigrating to Canada for the first time and is the first member of his family to take up residence in this country.
2. The person owns more than 10% of the shares of a corporation not resident in Canada and other members of his immediate family own the remainder of the shares.
You question whether gains accruing in the assets of the non-resident corporation prior to the time the person became resident in Canada would be excluded in the computing a taxable capital gain under paragraph 95(2)(f) of the Act.
In our view a non-resident person cannot have a foreign affiliate for the purposes of the Act. Accordingly, we concur with your view that the non-resident corporation would become a foreign affiliate of the taxpayer at the point in time that he became resident in Canada. The corporation would also be a "controlled foreign affiliate" of the taxpayer pursuant to subparagraph 95(1)(a)(iii) of the Act. In computing a taxable capital gain for the purposes of paragraph 95(2)(f) in these circumstances, the portion of the gain that accrued prior to the point in time the taxpayer became resident in Canada would not be included.
We trust that this is the information you require.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch