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 subsidiary of a corporation would qualify for the exemption under paragraph 149(1)(d.4).
Position:
Yes, provided that the corporation is a corporation as described in paragraph 149(1)(d.3).
Reasons:
This ruling is given on the basis that the corporation is a corporation as described in paragraph 149(1)(d.3). It is a factual determination whether a corporation qualifies for the paragraph 149(1)(d.3) exemption.
XXXXXXXXXX 992206
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers.
You advise that to the best of your knowledge and that of the taxpayers referred to above, none of the issues involved in the ruling request is:
I. in an earlier return of the taxpayers or related persons;
II. being considered by a taxation services office or a taxation centre in connection with a previously filed tax return of the taxpayers or related persons;
III. under objection by the taxpayers or related persons;
IV. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
V. the subject of a ruling previously issued by the Directorate.
In this letter, unless otherwise indicated, all statutory references are to the provisions of the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended) (the "Act"), and the following terms have the meanings specified:
a) "Authority" means XXXXXXXXXX,
b) XXXXXXXXXX,
c) "XXXXXXXXXX" means the XXXXXXXXXX,
d) "Province" means the XXXXXXXXXX,
e) "ACo" means XXXXXXXXXX,
f) "ICo" means the XXXXXXXXXX,
g) XXXXXXXXXX,
h) XXXXXXXXXX.
Our understanding of the facts, proposed transactions and their purposes is set out below.
FACTS
Corporate structure
1. The XXXXXXXXXX incorporated under the Municipal Act, XXXXXXXXXX.
2. The Authority was established as a corporation XXXXXXXXXX.
3. The Authority is not an agent of the government of the Province.
4. The Authority does not have shareholders or members and it is governed by a board of XXXXXXXXXX directors. XXXXXXXXXX of the directors of the Authority are appointed by the Province and XXXXXXXXXX directors are appointed by the XXXXXXXXXX, and all of the directors must be elected officials (in the case of XXXXXXXXXX appointments) or a member of the Province's Legislative Assembly (in the case of the provincial appointments). Provincial appointments are made by the Lieutenant Governor in Council.
5. ACo was incorporated under the XXXXXXXXXX. The one outstanding common share of ACo was transferred to the Authority XXXXXXXXXX.
6. ACo has no assets or liabilities.
7. ICo is a corporation continued under the XXXXXXXXXX.
Purpose of the Authority
8. The purpose of the Authority is to provide a XXXXXXXXXX.
9. The responsibilities of the Authority are set out in the XXXXXXXXXX Act. One of the responsibilities of the Authority in performing its purpose is to develop and administer programs XXXXXXXXXX:
a) XXXXXXXXXX;
b) XXXXXXXXXX.
Existing XXXXXXXXXX operations
10. XXXXXXXXXX.
11. XXXXXXXXXX is currently operated by ICo on behalf of the Province pursuant to a contract with XXXXXXXXXX which expires on XXXXXXXXXX. Under the terms of the contract, XXXXXXXXXX is responsible for supplying the equipment, land and buildings utilized in the XXXXXXXXXX program. The terms of the contract with XXXXXXXXXX have been renegotiated and extended for a XXXXXXXXXX year term to commence XXXXXXXXXX the new terms of which have been described as "XXXXXXXXXX".
12. Pursuant to our ruling XXXXXXXXXX ("Ruling I") dated XXXXXXXXXX, 1998, we confirmed that the Authority would be considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act and thus be exempt from Part I tax on its taxable income. That ruling did not address whether the Authority was also a corporation that is described in paragraph 149(1)(d.3) of the Act. While we are unable to rule that the Authority is a corporation described in paragraph 149(1)(d.3) of the Act since this transaction has already taken place, you advise as a fact that the Authority so qualifies as such.
13. Pursuant to our ruling XXXXXXXXXX ("Ruling II") dated XXXXXXXXXX, 1999, we confirmed that certain subsidiaries of the Authority would be exempt from tax under Part I pursuant to paragraph 149(1)(d.4) of the Act.
PROPOSED TRANSACTIONS
14. Effective XXXXXXXXXX it is proposed that the contract with XXXXXXXXXX for XXXXXXXXXX be assigned by ICo to the Authority and by the Authority to ACo. ACo will not own any assets other than the contract with XXXXXXXXXX.
15. The assignment of the contract for XXXXXXXXXX to the Authority and to ACo is part of an overall transfer of programs to the Authority which occurred XXXXXXXXXX as described in the Rulings I and II.
16. Responsibility for XXXXXXXXXX was not part of the transfers to the Authority on XXXXXXXXXX because at that time it was not known what form XXXXXXXXXX was to take following the expiry of the existing agreement on XXXXXXXXXX.
PURPOSE OF PROPOSED TRANSACTIONS
The purpose of the proposed transactions is to transfer the responsibility XXXXXXXXXX to a subsidiary of the Authority, ACo, from the Province.
RULING GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that all the proposed transactions are carried out as described above, we confirm the following:
Following the completion of the proposed transactions, ACo will be exempt from tax under Part I pursuant to paragraph 149(1)(d.4) of the Act.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued on December 30, 1996 and is binding on Revenue Canada provided the transactions are carried out by XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1999
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