| 5-921858 | |
| P. Spice | |
| (613) 957-8953 |
24(1)
Attention: 19(1)
September 3, 1992
Dear Sirs:
Re: Registered Retirement Savings Plan (RRSP) Qualified Investment - Eligible Corporation
This is in reply to your letter of June 15, 1992, in which you ask several questions concerning our interpretation of the Income Tax Act (the "Act") provisions relating to the above-noted qualified investment. Although we cannot answer some of your specific queries, we would be pleased to provide some general comments on the topics you have raised. Please note that since the comments are not in the context of an advance income tax ruling, they are not binding on the Department.
All or Substantially All
In the definition of "eligible corporation" contained in subsection 5100(1) of the Income Tax Act Regulations (the "Regulations"), there is a requirement that the corporation use "all or substantially all" of its property in a qualifying active business. You ask what criteria the Department applies in determining whether a corporation uses all or substantially all of its property as required.
Generally, the Department will apply a fair market value approach. At certain phases in a business cycle, however, the business may have unusually high levels of cash or short-term investments and, in these circumstances, the Department could make allowances. There are several departmental interpretation bulletins which discuss the meaning of "all or substantially all", but we would apply such interpretations with caution to situations which were not clearly addressed in the particular publication.
Qualifying Active Business
Paragraphs (c) and (d) of the definition "qualifying active business" in subsection 5100(1) of the Regulations describe two different factual situations which will be recognized as meeting the requirement that the business be carried on primarily in Canada. There are other means of meeting this requirement besides those specified in these provisions. In other words, paragraphs (c) and (d) are not meant to override any other reasonable tests in determining whether a business is being carried on primarily in Canada.
Specified Holding Corporation
Designated Shareholders - Employees
You ask whether a Canadian parent and a foreign subsidiary could, in combination, satisfy the requirements of the definition of a "specified holding corporation" in subsection 5100(1) of the Regulations. You have also asked several questions concerning the definition of "designated shareholder" contained in subsection 4901(2) of the Regulations, specifically paragraphs (d) and (e) thereof.
The situations and the legislation that you have asked us to comment on are complex and the answers may well vary depending upon the particular facts of the situation.
Accordingly, we are not in a position to provide you with our comments in response to your hypothetical situations, but would be willing to deal with the issues you have raised in the context of an advance ruling.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate