21 February 1996 External T.I. 9530155 - INVOLVING MULTIPLE MUNICIPALITIES

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:

Whether a for-profit corporation which will be owned equally by three municipalities will qualify for exemption by virtue of paragraph 149(1)(d) of the Act.

Position TAKEN:

Yes.

Reasons FOR POSITION TAKEN:

Paragraph 5 of IT-347R2 refers to an ownership test which could include a combination of qualifying entities. This interpretation may apply to one or more municipalities.

L. Barrows
XXXXXXXXXX		 953015

Attention: XXXXXXXXXX

February 21, 1996

Dear XXXXXXXXXX:

Re: Paragraph 149(1)(d) of the Income Tax Act (the "Act")

We are responding to your letter of November 8, 1995 addressed to Mr. Ted Fitzclarke of the Vancouver Tax Services Office which was referred to this Directorate for response. In your letter, you requested an interpretation of the above-referenced paragraph as it relates to the exemption of a for-profit corporation under a proposed ownership arrangement whereby three municipalities would own the corporation equally. Further, if we are of the view that the 90% or more ownership of the corporation must be held by one municipality as the wording may suggest, you requested similar interpretations of the provision under alternative forms of ownership described in your letter.

As mentioned in your letter, the situation describe therein relates to a specific, proposed transaction. Consequently, we advise that written confirmation of the tax implications inherent in a particular fact situation is only given by this Directorate in response to a request for an advance income tax ruling and submitted in the manner set out in Information Circular 70-6R2. However, in response to your request, we can provide the following general comments which are not binding on the Department.

Our Comments

Paragraph 149(1)(d) of the Act exempts from tax any corporation, commission or association that is owned not less than 90% by the federal or provincial government or a Canadian municipality. It also provides for the exemption from income tax of any corporation which is a wholly-owned subsidiary of such a corporation, commission or association. Paragraph 5 of Interpretation Bulletin IT-347R2 (copy enclosed) refers to an ownership test which could include a combination of qualifying entities. We are of the view that this interpretation may apply to ownership by one or more municipalities.

Where, however, the 90% share ownership test is met but the corporation, commission or association has the right to redeem any of its shares, it could, for purposes of subparagraph 149(1)(d)(i) of the Act, be considered that "a person other than Her Majesty in the right of Canada or a province or Canadian municipality had, during the period, a right under a contract, in equity or otherwise either immediately or in the future and either absolutely or contingently, to, or to acquire, shares or capital of that corporation, commission or association". This right would, as a result, disqualify the corporation, commission or association for exempt status under paragraph 149(1)(d).

In view of the opinion expressed above, it seem unnecessary to provide comments under the alternative forms of ownership outlined in your letter.

We trust these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosure

C.C.: Ted Fitz-Clarke
Vancouver TSO