912715 24(1)
Dear Sirs:
This is in reply to your letter dated September 27, 1991 wherein you requested a follow-up technical interpretation on the application of subsection 256(2) of the Income Tax Act (Canada) (the "Act") to an extension of the hypothetical situation involving five corporations (A,B,C,D, and E) as described in the letter dated April 11, 1991 from of your firm and the technical interpretation presented in our response thereto dated September 6, 1991.
In the original hypothetical situation A,B,C,D and E are associated with each other pursuant to the provisions of subsections 256(1) or 256(2) of the Act but as a result of C and E electing not to be associated with A,B,D, and E and A,B,C and D, respectively, then A,B and D would not be associated with each other for purposes of section 125 of the Act. The extended hypothetical situation involves the addition of X and Y to the corporate structure described in the original letter. Each of X and A and Y and B, respectively, are associated pursuant to paragraph 256(1)(b) of the Act. Prior to the elections made by C and E, X and Y would be associated pursuant to subsection 256(2) of the Act.
You wish to know whether the elections made by C and E pursuant to subsection 256(2) of the Act would be sufficient for X and Y not to be associated for purposes of section 125 of the Act or would A and B have to file separate elections pursuant to subsection 256(2) of the Act not to be associated with X and B and A and Y, respectively, for purposes of section 125 of the Act.
We are of the view that if each of C and E elect pursuant to subsection 256(2) of the Act not to be associated with A,B,D,E,X and Y and A,B,C, D, X and Y, respectively, then X and Y will not be associated, for purposes of section 125 of the Act, with each other. However, X and A and B and Y, respectively, will continue to be associated corporations for purposes of section 125 of the Act and all of the corporations would continue to be associated with each other for all other purposes of the Act.
The foregoing comments represent our general views with respect to the subject matter of your letter. The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch