In the original version of this Interpretation (see 167422), CRA found that, in the structure depicted immediately below (involving a non-resident parent (Hold Co) holding two chains of subsidiaries with US corporations above Canadian corporations, C3 was not closely related to C4.
CRA in this revised interpretation concluded that, in fact, C3 and C4 were closely related. Given that a qualifying subsidiary of a qualifying subsidiary of the particular corporation is also a qualifying subsidiary of the particular corporation, C3 (applying this rule iteratively) is considered to be a qualifying subsidiary of Hold Co, as is C4. CRA then stated:
It follows that C3 and C4 are closely related under subparagraph 128(1)(a)(iv) since qualifying voting control of C4 is held by, and the required shares of C4 are owned by, a qualifying subsidiary (that is, C2) of a corporation (that is, Hold Co.) of which C3 is a qualifying subsidiary. Since C3 and C4 are closely related to each other they are members of the same qualifying group (consisting of C3 and C4). The same analysis may be used for C1 with C2, C2 with C3 and C1 with C4. Since it has been demonstrated that C1, C2, C3 and C4 are a group of corporations, each member of which is closely related under section 128 to each other, they are members of the same single qualifying group.
CRA also stated:
Although corporations that are non-residents may be closely related to one another or to corporations that are resident in Canada, only those corporations that are both resident in Canada and registrants may be party to an election under section 156.
