POLICY & SYSTEMS BRANCH G.F.V. Wilkie, Acting Director Assessing Division
LEGISLATION BRANCH Corporate Rulings Directorate R.B. Day
Effects of Part VI Tax on the Cumulative Deduction Account ("CDA") Your File No. OA 1210-4-2
This is in reply to your memorandum of October 17, 1980 regarding the calculation of a company's CDA account upon changing its status to or from a Canadian-controlled, private corporation ("CCPC").
Our understanding of the situation outlined in your memo is as follows:
Control of a CCPC passes to a non-resident taxpayer thus subjecting the corporation to Part VI tax to recover previously allowed small business deductions (SBD). Should this company subsequently requalify for the SBD by once again becoming a CCPC, you have requested our views as to whether the CDA account should be computed:
(a) from the time the company ceased to be a CCPC, or
(b) the later of the date of incorporation and the 1972 taxation year.
It is our view that the CDA account would remain intact even though the SBD has effectively been recovered.
It is our view that a company will not have a "nil" CDA account should it once again qualify as a CCPC. Its CDA account would then be computed in accordance with paragraph 125(6) (b) of the Act which will necessarily include such a CCPC's CDA account at the point it became non-resident and ceased to be a CCPC. In other words, the CDA account would remain intact, as you contend in your memorandum.
Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch
RBD/mj