| 24(1) | 5-9677 |
| O. Laurikainen | |
| (613) 957-2129 | |
| Attention: 19(1) |
August 28, 1990
Dear Sirs:
Re: Subsection 95(6) of the Income Tax Act (the "Act")
This is in response to your letter of February 26, 1990 wherein you requested clarification of our interpretation of the above provision.
The question of whether an issue of rights or shares is subject to subsection 95(6) of the Act is one of fact that can only be determined with full knowledge of all the particulars of the situation. However, we can offer the following general comments.
It is our view that the application of subsection 95(6) of the Act is not limited to the prevention of artificial arrangements that are designed to avoid the mandatory inclusion of foreign accrual property income pursuant to subsection 91(1) of the Act by avoiding controlled foreign affiliate status. since it is our view that paragraph 95(6)(b) of the Act can apply where the invested is not controlled directly or indirectly in any manner whatever by the Canadian taxpayer before or after the issue of shares in question and where the invested was not a foreign affiliate of the taxpayer before such issue of shares, paragraph 95(6)(b) of the Act may also apply to deny the advantages of foreign affiliate status.
We hope that the above will be of assistance.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch