27 June 1989 Income Tax Severed Letter AC58055 - Winding-up of Subsidiary into Parent

5-8055
                                        D. Hartman
                                        (613) 957-2120

19(1)

Dear Sirs:

Re: Section 88 of the Income Tax Act (Canada) (the Act)

We are writing in response to your letter of May 4, 1989 wherein you requested a technical interpretation in the following hypothetical situation.

A wholly-owned subsidiary corporation, ("Subco") is to be wound up into its parent corporation ("Parentco") pursuant to subsection 88(1) of the Act. Subco holds a license which is eligible capital property. The license was originally acquired from Parentco. We have assumed that Parentco will continue to operate the business to which the license relates that was formerly carried on by Subco. From a legal standpoint, you state that upon the wind up of Subco, the license is extinguished. You would like confirmation that for purposes of subsection 88(1) of the act, it is Revenue Canada's view that the license will be deemed to have been disposed of by Subco in accordance with subparagraph 88(1)(a)(ii) of the Act.

It is our view, that in the situation described above, subsection 88(1) of the Act would apply, such that; Subco would be deemed to dispose of the license for proceeds of disposition as determined by paragraph 88(1)(a) of the Act and Parentco would be deemed to acquire the license at a cost determined by paragraph 88(1)(c) of the Act.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch