17 October 2002 External T.I. 2002-0146405 - SUBSIDIARY OF PUBLIC CORP.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

1. Would Aco, which is wholly owned by a public corporation, which in turn is controlled by a Canadian resident (individual), be a Canadian-controlled private corporation before December 1, 1999 (i.e., prior to the applicability of the simultaneous control provisions in subsection 256(6.1) of the Act)?

Position:

1. No.

Reasons:

1. After 1995, paragraph 125(7)(b), at the definition of Canadian-controlled private corporation, would apply to exclude Aco from being a Canadian-controlled private corporation. This is so notwithstanding the Court's decision in Parthenon (97 DTC 5343), which was decided based on an earlier version of the same definition.

		2002-014640
XXXXXXXXXX 	Allan Nelson, C.M.A.
(613) 443-7253
October 17, 2002

Dear XXXXXXXXXX:

Re: Technical Opinion Request

We are writing in reply to your letter to us dated June 6, 2002, concerning the definition of Canadian-controlled private corporation ("CCPC") in subsections 248(1) and 125(7) of the Income Tax Act (Canada) (the "Act").

You have asked us to consider the following hypothetical set of facts:

? Aco is a corporation that is a resident of Canada and is a wholly-owned subsidiary of Bco;

? Bco is a public corporation as defined in subsection 89(1) of the Act, is a resident of Canada and is not a prescribed venture capital corporation;

? Both Aco and Bco were incorporated in Canada; and

? An individual who is a resident of Canada owns more than 50% of the voting shares of Bco. The remaining voting shares of Bco are publicly held and traded on both a Canadian and a US stock exchange.

Question

In the hypothetical situation mentioned above, would Aco be considered a CCPC prior to December 1, 1999 (i.e., the effective date for application of subsection 256(6.1) of the Act)?

Your Comments

In Parthenon Investment's Limited v. MNR (97 DTC 5343), the Federal Court of Appeal reached the conclusion that a corporation ultimately controlled by a Canadian resident was a CCPC. In that case, Parthenon Investments Limited was a Canadian corporation directly controlled by a non-resident corporation that, in turn was controlled by a Canadian corporation.

Reference is also made to a technical interpretation dated April 17, 2001 (our file #2001-0064567), where we indicated that we would apply the Parthenon decision before December 1, 1999 and subsection 256(6.1) of the Act thereafter.

Our Comments

As explained in Information Circular 70-6R5, if your situation involves a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments, which may be of some assistance to you.

Prior to 1996 (the CCPC definition on which the Parthenon decision was based), CCPC was defined to mean

...a private corporation that is a Canadian corporation other than a corporation controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), or by any combination thereof;

After 1995 and before taxation years that begin after 1999 (the "Interim CCPC definition") CCPC was defined to mean

...a private corporation that is a Canadian corporation other than a corporation

(a) controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), or by any combination thereof,
(b) that would, if each share of the capital stock of a corporation that is owned by a non-resident person or a public corporation (other than a prescribed venture capital corporation) were owned by a particular person, be controlled by the particular person, or
(c) a class of the shares the capital stock of which is listed on a prescribed stock exchange;

In our file #2001-0064567, we responded to an internal enquiry and focused on paragraph (a) of the Interim CCPC definition, using the "ultimate control" test in the Parthenon decision. Accordingly, we stated that for certain taxation years prior to the application of subsections 256(6.1) and (6.2) of the Act, a Canadian private corporation that was a subsidiary of a public corporation, which in turn was controlled by a Canadian private corporation, could be treated as a CCPC for the purposes of the Act.

Since then, we have reconsidered our position. As a result, in response to your question, it is our view that after 1995, by applying the words in paragraph (b) of the Interim CCPC definition, it can be seen that if each share of the capital stock of Aco that is owned by Bco (a public corporation) were owned by a particular person, Aco would be controlled by the particular person. Hence, the requirements of paragraph (b) are met and would exclude Aco from being a CCPC.

Additional Comments

Our comments do not consider the possible impact of other provisions of the Act, which may or may not apply in a particular situation, such as paragraph 251(5)(b) and subsection 256(5.1) of the Act.

We hope the above will be of assistance to you.

Yours truly,

Milled Azzi, C.A.

for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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