24 September 1990 Income Tax Severed Letter ACC9622 - Association and Acquisition of Control

24(1)                                          900602
                                               A.A. Cameron
                                               613-957-2115

19(1)

September 24, 1990

Dear Sirs:

Re: Association and acquisition of control

This is in response to your letter of April 27, 1990 in which you requested the Department's interpretation of the association rules in section 256 of the Income Tax Act (the "Act") in the following hypothetical case.

1.        Parent is a Canadian-controlled private corporation   
          ("CCPC"), as defined in paragraph 125(7)(b) of the Act.

2.        Its fiscal period ends on the last day of February.

3.        Sub is a CCPC, is a wholly-owned subsidiary of Parent and 
          its fiscal period ends April 30.

4.        Target is a CCPC and its fiscal period ends June 30.

5.        Parent acquires control of Target on April 15 of a      
          particular calender year.  Target was neither related nor 
          associated, as respectively defined under subsections   
          251(2) and 256(1) of the Act, with either Parent or Sub 
          prior to this time.

6.        The provisions of subsection 256(1.4) of the Act do not 
          apply in this case.

You seek confirmation that Sub and Target would not be associated with each other for the taxation years ending in the calender year in which Target was acquired by Parent.

Comments

The provisions of paragraph 249(4)(a) of the Act will deem the end of a taxation year for Target immediately prior to the acquisition of control thereof by Parent, and paragraph 249(4)(b) will deem the start of a new taxation year for Target at the time of such acquisition.

Paragraph 249(4)(d) of the Act will permit Target to adopt a new fiscal period, within the meaning provided in subsection 248(1) of the Act. If the new fiscal period chosen by Target establishes a taxation year ending in the calender year it was acquired by Parent, then Target will be associated with Sub in that taxation year pursuant to the provisions of paragraph 256(1)(b) of the Act (i.e. they will be associated for Sub's taxation year ended April 30 of the calendar year of acquisition and Target's taxation year ending later in that calendar year). Provided that Target adopts a fiscal period ending in the subsequent calendar year, then in our opinion Target and Sub will not be associated for Sub's taxation year ending April 30 in the calendar year of acquisition.

The opinions expressed herein are not rulings and are not considered binding on the Department as outlined in paragraph 24 of Information Circular 70-6R.

Yours truly,

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