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S. Leung (613) 957-2116
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MAR 14 1989
Dear Sirs:
Re: Request for Technical Interpretation of Subsection 256(5.1) of the Income Tax Act (Canada) (the "Act")
This is in reply to your letter of February 14, 1989 concerning our response of November 24, 1988 to your letter of November 2, 1988. You requested our opinion as to whether subsection 256(5.1.) of the Act would apply to the hypothetical situation outlined in your letter of November 2, 1988.
In the above-noted hypothetical situation, the taxpayer would not be dealing at arm's length with Company B. Therefore the exception from the application of subsection 56(5.1) of the Act as provided in that subsection would not apply. The taxpayer would clearly be in control of the business of Company B because he is looking after the day to day business of Company B. However, whether the taxpayer would in fact control Company B is a question of fact, notwithstanding that the taxpayer does not have a power of attorney over the shareholders of Company B nor is he in the position to cause Company B to be wound- up. Therefore, as noted in our letter of November 24, 1988, all the relevant facts in the circumstances surrounding a particular situation have to be reviewed and examined before a determination as to whether subsection 256(5.1) of the Act would apply can be made.
As all facts cannot be established in a hypothetical situation, we are not prepared to offer an opinion as to whether subsection 256(5.1) of the Act would or would not apply.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch