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M. Carsley (613) 957-2116
December 16, 1986
Dear Sirs:
This is in reply to your letter of December 5, 1986 in which you requested our opinion as to whether paragraph 50(1)(b) of the Income Tax Act (the "Act") applies in a situation described in the following paragraphs.
A taxpayer owns all of the issued shares of a Canadian-controlled private corporation ("Holdco") which in turn owns one-third of the issued shares of a Canadian-controlled private corporation ("Opco"). Both Opco and Holdco are small business corporations within the meaning of subsection 248(1) of the Act.
Opco is insolvent, in receivership, and its shares are worthless. Holdco has no other assets other than its shares of Opco, and its shares are also worthless.
Your question to us is that if Articles of Dissolution under the Canada Business Corporations Act are filed to dissolve Holdco, will the Department consider the shares of Holdco to be disposed of pursuant to paragraph 50(1)(b) of the Act?
Paragraph 50(1)(b) of the Act will only apply where the conditions set out in either subparagraph 50(l)(b)(i) or (ii) of the Act are met. As Holdco does not meet either of these conditions subsection 50(1) of the Act will not apply to deem the taxpayer to have disposed of the shares of Holdco.
It is our opinion that the shares of Holdco will be considered to be disposed of pursuant to paragraph 54(c) of the Act on the date the Certificate of Dissolution is issued. However, if there is reason to believe that Holdco may be restored it is our opinion that there has been no disposition of the shares on that date. As a result of the disposition the taxpayer would have a capital loss as defined in subsection 39(1) of the Act.
The taxpayer would not have a business investment loss as a result of the disposition of the shares of Holdco, as neither of the conditions set out in subparagraph 39(l)(c)(i) or (ii) are met. The disposition of the shares of Holdco is not one to which subsection 50(1) of the Act applies, for the reasons discussed above. The shares of Holdco have not been disposed of to another person. This position is stated in paragraph 8 of IT-444 .
We trust this information will be of assistance to you.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs branch