20 August 1990 Income Tax Severed Letter ACC9290 - Dividend Deduction

Peter Lee
                                        (613) 957-2745

24(1)

Attention: 19(1)

August 20, 1990

Dear Sirs:

Re: Advance Income Tax Ruling Request
                24(1)

This is in reply to your letter of July 20, 1990 and is further to our recent telephone conversation. You requested an advance income tax ruling on behalf of the above-noted corporations with respect to whether subsection 112(2.1) of the Income Tax Act (the "Act") would apply to deny a dividend deduction under subsection 112(1) of the Act.

As stated in paragraph 3 of Information Circular 70-6R, an advance income tax ruling will be given only in respect of a definite transaction which a taxpayer is contemplating.

24(1)

It is the sole responsibility of the appropriate District Taxation Office to review completed transactions.

The following is a statement of our general view on the meaning of the term "ordinary course of business" as announced at the 1984 Canadian Tax Foundation Conference, which may be helpful to you:

Factors that we have considered in establishing whether particular shares were or were not acquired in the ordinary course of business are as follows:

1) the nature of the holder's activities;

      2)  the number and frequency of such share acquisitions by
          the holder;

      3)  whether the funds involved represent the initial        
          capitalization of an new subsidiary or the provision of 
          additional operating capital to a subsidiary, both of
          which would normally indicate permanent capitalization;

      4)  the terms of the shares acquired and their status as"term 
          preferred shares" otherwise than by virtue of control of 
          the issuer by specified financial institutions; and

      5)  whether the shares were acquired as consideration on the 
          sale of a business or part of a business where the      
          holder's business has not previously included such      
          transactions.

Yours truly,

ILLEGIBLE SIGNATURE for Director Financial Industries Division Rulings Directorate