5 May 2000 External T.I. 1999-0011395 - Canadian Controlled Private Corporation; EDC

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 CCPC where control of Corp by EDC

Position: yes

Reasons: ITA 125(7); 248(1); ( 89(1);

								1999-001139
XXXXXXXXXX 							Denise Dalphy
(613) 957-9231
Attention:  XXXXXXXXXX 

May 5, 2000

Re: Definition of "Canadian-controlled private corporation" ("CCPC")

We are writing in reply to your facsimile transmission dated August 30, 1999 wherein you inquire about the interpretation of the above-noted term as it is defined in subsection 125(7) of the Income Tax Act (the "Act").

Facts

1. The Export Development Corporation ("EDC") acquired an equity investment or control of (the "EDC acquisition") a particular corporation (the "Acquired Corporation").

2. Immediately prior to the acquisition, the Acquired Corporation was a CCPC.

3. The Acquired Corporation is resident in Canada.

4. EDC is neither a "public corporation", within the meaning of subsection 89(1), nor a non-resident corporation.

5. EDC is not a "prescribed federal Crown corporation" within the meaning of section 7100 of the Income Tax Regulations.

6. Other than the EDC acquisition, no other changes have been made by or to the Acquired Corporation.

Issue

Would the EDC acquisition, in and of itself, cause the acquired corporation to no longer qualify as a CCPC, as defined in subsection 125(7).

Opinion

The EDC acquisition, in and of itself, would not cause the Acquired Corporation to no longer qualify as a CCPC.

Legislation and Analysis

Subsection 125(7) defines a CCPC as follows:

""Canadian-controlled private corporation" means a private corporation that is a Canadian corporation other than a corporation

(a) controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), or by any combination thereof,

(b) that would, if each share of the capital stock of a corporation that is owned by a non-resident person or a public corporation (other than a prescribed venture capital corporation) were owned by a particular person, be controlled by the particular person, or

(c) a class of the shares of the capital stock of which is listed on a prescribed stock exchange;"

[emphasis added]

Since it is our understanding the EDC is neither a non-resident person nor a public corporation and its shares are not listed on a prescribed stock exchange, paragraphs (a) to (c) in the definition of CCPC would not apply. As such, it is only necessary to determine whether the Acquired Corporation would continue to be a "Canadian corporation" and "private corporation", as defined in subsections 248(1) and 89(1), after the EDC acquisition.

We assume that, since the acquired corporation was a CCPC immediately before the EDC acquisition, the requirement in paragraph (a) in the definition of "Canadian corporation" in subsection 89(1) applies, that is, that the acquired corporation was incorporated in Canada. Accordingly, the acquired corporation would continue to be a "Canadian corporation".

In order to determine whether the acquired corporation will be a "private corporation" after the EDC acquisition, the following four requirements contained in that definition in subsection 89(1) must be satisfied:

1. The Acquired Corporation must be resident in Canada,

2. The Acquired Corporation must not be a public corporation,

3. The Acquired Corporation must not be controlled by one or more public corporations, and

4. The Acquired Corporation must not be controlled by a prescribed federal Crown corporation (or by a combination of corporations described in #3 and #4).

Based on the facts stated in #4 and #5 in the Facts above, conditions 3 and 4 above would be satisfied. On the basis of the stated fact in #3 in the Facts above, condition 1 would be satisfied, and on the basis of the stated fact in #6 in the Facts above, condition 2 would be satisfied. Accordingly, the EDC acquisition of the Acquired Corporation would not, in and of itself, cause the Acquired Corporation to cease being a private corporation, a Canadian corporation and a CCPC.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

Yours truly,

Paul Lynch
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch