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:
Does 256(7)(b) apply where the same group of unrelated individuals control an amalgamated corporation and controlled both the predecessors?
Position TAKEN:
There is no change of control.
Reasons FOR POSITION TAKEN:
Same group control before and after amalgamation indicates that there is no change.
5-941474
XXXXXXXXXX D. Yuen
Attention: XXXXXXXXXX
April 5, 1995
Dear Sirs:
Re: Subsection 111(5) of the Income Tax Act1
We are writing in response to your letter of June 1, 1994 wherein you requested our comments on an acquisition of control for purposes of subsection 111(5).
Situation
Individuals A, B, C and D own 40%, 20%, 20% and 20%, respectively, of the common shares of Xco.
A, B, C and D own 15%, 24%, 24% and 24%, respectively, of the common shares of Yco. The son of A owns 13% of the common shares of Yco.
A, B, C and D are not related to one another.
Xco has non-capital losses.
Your Question
If Xco and Yco were to amalgamate under section 87 to form Amalco, would the non-capital losses of Xco be subject to the restrictions contained in subsection 111(5) on the basis that the amalgamation has resulted in an acquisition of control of Xco?
Your Views
It is your view that, prior to the amalgamation, Xco was controlled by the group consisting of A, B, C and D. Following the amalgamation, Amalco will be controlled by the group consisting of A, B, C and D and therefore, it cannot be said that the group of persons that controls Amalco immediately after the amalgamation did not control Xco immediately before the amalgamation. As a result, the amalgamation should not result in an acquisition of control of Xco pursuant to paragraph 256(7)(b).
If your conclusions concerning the control of Amalco and Xco are correct, then the provisions of paragraph 256(7)(b) would not be applicable. As it is primarily a question of fact whether a corporation is controlled by a group of persons, we are unable to provide any further comments on the situation.
The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
1 All statutory references in this letter are to the Income Tax Act (Canada) R.S.C. 1985 (5th Supp.) c.61, as amended.
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