10 April 1997 External T.I. 9703265 - SUBSTANTIAL CANADIAN PRESENCE

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:

If substantial Canadian presence test is satisfied in year of incorporation, is property retroactively not foreign to date of incorporation or to date the $250,000 test is satisfied.

Position:

To date of incorporation.

Reasons:

Test is based on the incurring of more than $250,000 in expenses in the calendar year of incorporation (which could be as late as Dec. 31) but causes share or debt purchased any time in the year to be non-foreign.

XXXXXXXXXX 970326

Attention: XXXXXXXXXX

April 10, 1997

Dear Sirs:

Re: Proposed Clause 206(1.1)(d)(iii)(E)

This is in reply to your facsimile transmission of February 5, 1997, concerning the above-noted proposed amendment ("the Clause") to the Income Tax Act (the "Act"). You ask whether or not it is our view that a share or debt obligation of a corporation is foreign property in the calendar year of its incorporation in the period between the corporation's date of incorporation and the date on which the corporation has expended more than $250,000 on the services described in the Clause. We are to assume that the conditions in proposed subparagraphs 206(1.1)(d)(i) and (ii) are satisfied at the relevant time.

For example, in a single calendar year:

1)the corporation is incorporated on April 1,

2) the share is acquired by a taxpayer described in any of paragraphs 205(a) through (f) of the Act on April 1, and

3) the threshold of $250,000 in incurred expenses is surpassed on October 30.

You ask if it is our view that the share is "foreign property" as defined in paragraph 206(1)(d.1) of the Act to the taxpayer at any time in the calendar year?

This will serve to confirm that it is our opinion that such a share is not "foreign property" (as defined in paragraph 206(1)(d.1) of the Act) to the taxpayer at the time of its acquisition, and would not be foreign property to any such taxpayer at any time in the calendar year from the date of incorporation to December 31.

However, it is also our view that the share's status cannot be determined until the earlier of the end of the calendar year of its incorporation and the day in the calendar year on which the corporation exceeds the $250,000 threshold. If by December 31 of the year of incorporation the threshold has not been met, the share will be considered foreign property from its date of acquisition. The taxpayer would then be liable for Part XI tax from, citing the example above, April 1 to the last day of the month preceding the month in which it disposes of the property.

Although the foregoing comments are not binding on the Department, we trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch