G. Thornley (613) 957-2101
SEP 28 1988
Dear Sirs:
Re: Small Business Corporation as defined in Subsection 248(1) of the Income Tax Act (the "Act")
This is in reply to your letter of August 10, 1988 in which you ask if the phrase "bond, debenture, bill, note, mortgage, hypothec or similar obligation" as contained in the definition of Small Business Corporation in subsection 248(1) of the Act would include an inter-company cash advance which is not documented by way of a formal note, and which has no fixed repayment date. Similar words are used in the definition of a "qualified small business corporation share" in subsection 110.6(1) of the Act as recently modified by Bill C-139.
Our Comments
If your question relates to an actual fact situation involving a specific taxpayer, it should be directed to a district taxation office together with all the documentation and names of the parties involved. However, we are prepared to offer some general comments in respect of our interpretation of the aforementioned expression and the application of the ejusdem generis rule.
The ejusdem generis rule means that the generic or collective expression which contemplates an enumeration is confined to things of the same nature as those in the enumeration even if , by its nature, this generic or collective expression can be extended much further. In this regard, you may wish to refer to G.T.E. Sylvania Canada Ltd. v. The Queen 74 DTC 6315 for a detailed explanation of the rule and an example of the application.
The fundamental difference between bond, debenture, bill, note, mortgage, hypothec and advance, as defined in Black's Law Dictionary, in our view, is as follows. Bonds, debentures, bills, notes, mortgages and hypothecs are instruments that evidence a debt or loan and are issued by the borrower. Such debt or loan is repayable at maturity. An advance is defined as "moneys paid before or in advance of the proper time of payment; money or commodities furnished on credit". Based on the definitions, it is our view that an inter-company cash advance is not a "similar obligation" within the meaning of this term as it is used in the definition of Small Business Corporation in subsection 248(1) of the Act.
In this respect we note that a similar response was given to XXXX on August 3, 1988.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch