CASE STUDY #10
Recommended Solution:
(1) Review of the Act;
Since T Ltd. owns 51% of Holdco and Holdco is a CCPC
which in turn controls Pubco and the chairman and at
least 3/4 of the directors are Canadian citizens then it
would appear that Pubco would qualify as a "Canadian
newspaper or periodical" since it satisfies the
conditions present in subparagraph 19(5)(v) of the Act. (2) Identification of a Tax Benefit:
The current ownership structure allows Pubco to qualify
as a "Canadian newspaper or periodical" even though it
may in fact be controlled by France Co. If each issue
of the periodical satisfies the conditions present in
paragraph 19(5)(a) then a deduction for the paid
advertising placed in that issue would not be denied
under subsection 19(1). (3) Identification of an Avoidance Transaction:
With the very limited facts available, it would be very
difficult to determine whether or not the share structure
was selected primarily for bona fide business purposes or
primarily to obtain the tax benefit. For analysis
purposes, we shall assume that an avoidance transaction
exists in this particular case.(4) Misuse or Abuse of the Act:
For purposes of section 19 of the Act, France Co. does
not control Holdco or Pubco and, as such, the provisions
of clause 19(5)(b)(v)(C) have been met with regard to
control. Where the publication complies with the
Canadian content rules, it would be difficult to argue
that the object and spirit of section 19 have not been
met. The transactions would, therefore, not result in
the misuse of the provisions or an abuse having regard to
the provisions of the Act read as a whole. Other Comments:
There does not appear to be a "blatant" tax avoidance
scheme forwarded in this particular case. 21(1)(b)
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