11 October 2013 APFF Roundtable, 2013-0495631C6 F - Actions admissibles de petites entreprises -- summary under Qualified Small Business Corporation Share

Mr. X holds all the common shares of Holdco, whose only asset is shares of Opco with a fmv of $1M. Opco's has $1.5M of cash, $3.5M of active business assets and debt of $4M, so that it satisfies the 90% test, and the percentage tests were satisfied during the last 24 months. Immediately prior to a sale of Holdco, the cash of Opco is dividended to Holdco, and by Holdco to Mr. X, so that, for a moment in time, Holdco does not satisfy the 50% test. Is such a momentary breach acceptable?

CRA stated (TaxInterpretations translation):

[A] share of the capital stock of a SBC cannot fail to satisfy one of the above-described three tests, even if for only a moment, in order to qualify as a QSBC.

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Income Tax Act - s. 110.6(1) - Qualified Small Business Corporation Share
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d7 import status
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