| 5-921974 | |
| 24(1) | B. Kerr |
| 957-2092 |
Attention: 19(1)
August 26, 1992
Dear Sirs:
Re: Connected Corporations - Qualified Small Business Corporation Share
This is in response to your letter of June 22, 1992 wherein you requested a technical interpretation as to whether paragraph 186(4)(a) of the Income Tax Act (the "Act") must be interpreted in light of subsection 186(2) of the Act, for the purposes of determining if a share is a qualified small business corporation share as defined in subsection 110.6(1) of the Act.
Comments
In your letter you have outlined what appears to be an actual fact situation. To the extent that it relates to a past transaction you should contact the appropriate District Taxation Office, since the review of such transactions falls within their responsibility and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. If it relates to a proposed transaction, assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling.
The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R2 (IC 70-6R2) dated September 28, 1990 issued by Revenue Canada, Taxation. However we can offer the following general comments which we hope will be of assistance to you.
We are of the opinion that the rules set out in subsection 186(2) of the Act must be applied in order to determine whether two or more corporations are connected within the meaning of subsection 186(4). Although subsection 186(2) of the Act only applies for the purposes of Part IV, it is our opinion that reference must be made to the definition of control as contained in that particular provision in order to determine the meaning of "control" for purposes of subsection 186(4), since that particular provision is included in Part IV and is thus specifically covered by the provisions of subsection 186(2). Consequently, for the purposes of the definition of "qualified small business corporation share" and "small business corporation", we must refer to control as defined in subsection 186(2) to determine whether corporations are connected within the meaning of subsection 186(4). Small business corporation has the meaning assigned by subsection 248(1) of the Act.
In determining whether two or more persons are dealing at arm's length for the purposes of subsection 186(2) of the Act, subsection 251(1) of the Act provides that related persons are deemed not to deal at arm's length and it is a question of fact whether persons not related to each other are dealing at arm's length. In a situation involving two corporations subparagraph 251(2)(c)(i) deems the two corporations to be related persons if they are controlled by the same person or group of persons. Generally, where the persons are not related, two or more persons will be considered to be a group which controls a corporation where there is evidence that they have a common link or interest or that they act together (i.e. without independent interests) to control the corporation.
The foregoing comments represent our general views with respect to the subject matter of your letter. The facts of a particular situation may lead to a different conclusion. The foregoing opinions are not rulings and, in accordance with paragraph 21 of IC 70-6R2, are not binding on Revenue Canada Taxation.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch