Revenue Canada Taxation Head Office
XXX
G. Thornley (613) 957-2101
Dec 11, 1987
Dear Sirs:
Re: Subsection 248(1) - "small business corporation".
This is in reply to your letter of November 5, 1987 concerning the Department's interpretation of the meaning of the expression "substantially all of the assets" as used in the definition of "small business corporation" contained in the above noted subsection of the Income Tax Act (the "Act").
As noted by you it is the Department's view, see pages 570- 572 of the 1984 Conference Report, that "substantially all of the assets" as used in a number of provisions of the Act normally means at least 90% of all the assets of the corporation. You have been unable, however, to find any published statement by the Department regarding whether the 90% test is applied to the original cost of the assets, the tax cost amount of the assets, the net book value of the assets as determined for accounting purposes, the fair market value of the assets acquired by the corporation, the fair market value of all the assets of the corporation including, for instance, goodwill which may have arisen through the operation of the corporation's business, or some other criteria. It is your view that the fair market value of the assets of the corporation would be the best measure to determine if a corporation is currently a "small business corporation".
You ask for our views in this matter and specifically ask us to comment on the three hypothetical fact situations set out in your letter.
Our Comments
The Department considers that it would be inappropriate to adopt a particular universal base or measuring stick to apply to all circumstances. Accordingly, the number of assets, their relative sizes, any of the valuation methods outlined above, or some other appropriate measurement may be used. The selection of the measuring stick should be based on the facts of each situation which will dictate what base is most appropriate. As the facts of each circumstance may differ, the determination in each specific situation may only be made after a review of all pertinent information obtained during the course of an audit by departmental officials. For these reasons we are unable to comment specifically on your three hypothetical fact situations.
We trust, however, that our comments may prove helpful in this matter.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch