Revenue Canada Taxation
XXXX
J. Wilson Thompson 613-593-6937
February 2, 1982
Dear Sirs:
This is in reply to your letter of October 26, 1981 and our subse- quent telephone conversation in which you outlined the following hypothetical situation:
1. Mr. A and his wife are both residents of the U.S.
2. Mr. A and his wife own all of the issued and outstanding shares of A Ltd., a Canadian corporation, which carries on an active business in Canada. A Ltd. has a December 31 fiscal year end.
3. Mr. A and his wife also own all of the issued and outstanding shares of B Inc., a U.S. corporation that carries on business solely in the U.S. B Inc. also has a December 31 fiscal year end.
4. It is to be assumed that Mr. A and his wife will sojourn in Canada for a period of 183 days or more for 3 or 4 consecutive years and are, therefore, deemed by paragraph 250(1)(a) of the Income Tax Act (the Act) to have been resident in Canada throughout each of these years.
5. Mr. A and his wife owned the shares of B Inc. prior to their sojourn in Canada.
QUESTIONS
A. Is A Ltd., assuming it otherwise qualifies, eligible for the small business deduction under subsection 125(1) in the fiscal years in which Mr.A and his wife are deemed to have been resident in Canada?
B. If the answer to A. is positive, does subsection 190(1) of the Act apply only in the year in which Mr. A and his wife cease to sojourn in Canada for 183 days or more?
C. Does subsection 48(1) of the Act apply so as to deem Mr. A and his wife to have disposed of their shares of B Inc. at the end of each calendar year during which they are deemed by virtue of paragraph 250(1)(a) to have been resident in Canada or only at such time as they cease to sojourn in Canada for 183 days or more?
In general terms, the technical question being addressed is whether the deeming provisions of paragraph 250(1)(a) of the Act will be effective for purposes of determining if a corporation is a CCPC as defined in paragraph 125(6)(a) of the Act. In our view, the deeming provision would be effective for that purpose. However, there may be a substantial question of fact as to whether the individuals in question did become factually resident at some point in time such that paragraph 250(1)(a) would not apply.
Subsection 190(1) would apply in the year that the individuals ceased to be resident in Canada. This might, as you have outlined, be the year they do not sojourn for more than 183 days.
With respect to your third question, it is likely that subsection 48(4) would apply such that subsection 48(1) would not become effective in the period under consideration.
It is also our view that there would be no deemed disposition at the point of time between two taxation years during which the deeming provision of paragraph 250(1)(a) applied as the residency is deemed "throughout" both taxation years. (See paragraphs 2 and 9 of IT-451 ).
Yours truly,
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch