MEMORANDUM
March 2, 1989
TO Policy and Systems Branch Special Audits Division
R.S. Biscaro Manager Tax Avoidance Section
FROM Specialty Rulings Directorate S.J. Tevlin (613) 957-2118
This is in response to your memorandum of January 23, 1989, wherein you requested our comments regarding the application of subsection 55(2) of the Income Tax Act (the "Act") in the following situations.
I) Our understanding of the facts in your first situation is as follows:
XXXX
Your concern is whether subsection 55(2) of the Act will be applicable to the dividend received by Holdings as part of the series of transactions.
It is our opinion as stated in the 1981 Tax Conference that where a person or persons incorporate new companies and the incorporation of these companies is involved in the series of transactions or events that include the payment of dividends, their interest in the new corporation will be considered as an increase in the interest in any corporation.
XXXX
Your concern is whether subsection 55(2) will be applied to the dividends received by the XXXX.
In our view, since the XXXX received a dividend as part of a series that resulted in an increased interest of the unrelated shareholders in XXXX subsection 55(2) would be applicable to the dividend received by the XXXX since there has been a significant increase in the interest in "any" corporation.
for Director Re-organizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch