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: Will the shares of a corporation that is in the process of XXXXXXXXXX be qualified investments for an RRSP, RRIF or RESP under 4900(12)(a) of the Regulations?
Position: Yes.
Reasons: The shares satisfy 4900(12) because the business operations have commenced.
XXXXXXXXXX 2001-007611
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Company") (XXXXXXXXXX)
This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. The Company was incorporated under the laws of XXXXXXXXXX. The Company is a Canadian-controlled private corporation and a taxable Canadian corporation. The expression "Canadian-controlled private corporation" has the meaning assigned by subsection 125(7) of the Income Tax Act (the "Act") and the expression "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act.
The Company's legal address is XXXXXXXXXX. The Company runs its business from XXXXXXXXXX . The Company's legal address will eventually be changed to its business address. The Company files its tax returns with the XXXXXXXXXX Taxation Centre and is located within the area served by the XXXXXXXXXX Tax Services Office.
2. The Company's authorized share capital consists of the following:
(a) an unlimited number of Class "A" special shares, issuable in series;
(b) an unlimited number of Class "B" special shares, issuable in series;
(c) an unlimited number of Class "C" special shares, issuable in series; and
(c) an unlimited number of common shares.
3. The Company has issued XXXXXXXXXX common shares and they are held as follows:
XXXXXXXXXX.
The issued and outstanding shares of XXXXXXXXXX are owned by XXXXXXXXXX (the "Trust"). The Trust was established for the benefit of XXXXXXXXXX, Canadian citizens that reside in XXXXXXXXXX. The sole trustee of the Trust is XXXXXXXXXX, a resident of Canada for purposes of the Act.
4. The sole director of the Company is XXXXXXXXXX.
The Company has a Board of Advisors (the "Committee"). The Committee consists of XXXXXXXXXX. The role of the Committee is to help the President and Chief Executive Officer run the business effectively and in the best interest of the shareholders of the Company. The members of the Committee are all investors in the Company that have agreed to help the Company through introductions to sales opportunities and by helping with a variety of administrative and control tasks.
5. The following people are working full-time on the Company's business:
XXXXXXXXXX.
The following people are working part-time on the Company's business:
XXXXXXXXXX.
The Company also uses XXXXXXXXXX.
All the people listed above are Canadian citizens that reside in XXXXXXXXXX.
6. The Company was formed to XXXXXXXXXX .
7. On XXXXXXXXXX (the "Corporation"), a corporation without share capital, and XXXXXXXXXX (the "Contractor") entered into the XXXXXXXXXX (the "Agreement") whereunder the Corporation agreed to help the Contractor finance sub-project agreements that XXXXXXXXXX In the Agreement, the Company is named as a participant that will help the Contractor with the project. In order to ensure that the Company has understood the terms and conditions of the Agreement, the Company has signed a XXXXXXXXXX Agreement with the Contractor in respect of the Agreement. Through this strategic alliance with the Contractor, the Company has commenced to take the steps required to achieve its corporate objectives.
8. In XXXXXXXXXX, the Company entered into contracts with XXXXXXXXXX. These professionals have agreed to provide their services to the Company on a contract basis until the Company secures the financing required for its operations. These professionals will become employees of the Company upon the completion of this financing.
9. On XXXXXXXXXX, the Company billed the Contractor $XXXXXXXXXX for the completion of Phase I of its contract with the Contractor in respect of the Agreement. On XXXXXXXXXX, the Company issued a progress billing of $XXXXXXXXXX for the design and infrastructure development services provided in the XXXXXXXXXX.
10. As at XXXXXXXXXX, the Company's assets consisted of the following:
(a) Cash $ XXXXXXXXXX
(b) Accounts Receivable $ XXXXXXXXXX
(c) Software and Technology $XXXXXXXXXX
(d) Start-up Costs $ XXXXXXXXXX
(e) Fixed Assets $ XXXXXXXXXX
All of the Company's assets are currently used principally in its active business which is carried on primarily in Canada and all of the Company's assets will continue, for the foreseeable future, to be used in its active business which will be carried on primarily in Canada.
Proposed Transactions
11. XXXXXXXXXX.
12. The Company intends to recruit the professionals that it will need to meet its growth forecasts. It intends to make extensive use of online recruitment services until it can hire a full-time human resources professional. By the end of XXXXXXXXXX, the Company expects to hire XXXXXXXXXX With respect to staffing, the Company expects to have XXXXXXXXXX employees by the end of XXXXXXXXXX employees by the end of XXXXXXXXXX employees by the end of XXXXXXXXXX employees by the end of XXXXXXXXXX employees by the end of XXXXXXXXXX.
13. The Company will raise additional working capital to help finance the anticipated corporate growth through the issuance of common shares (the "Shares") to the public.
14. Some of the Shares of the Company will be sold to registered retirement savings plans ("RRSP"), registered retirement income funds ("RRIF") and registered education savings plans ("RESP"). However, a Share of the Company will not be issued to a RRSP, a RRIF or a RESP if the annuitant under the RRSP or the RRIF or the subscriber or beneficiary under the RESP is a connected shareholder within the meaning assigned by subsection 4901(2) of the Income Tax Regulations (the "Regulations").
Within the meaning assigned by subsection 4901(2) of the Regulations, a connected shareholder is a person who does not deal at arm's length with the Company or a person that directly or indirectly holds 10% or more of the shares of any class of shares of the Company or of any corporation related to the Company. Where a person owns 10% or more but less than 50% of the shares of any class of shares of the Company or of any corporation related to the Company, the person may be exempted from being a connected shareholder if the aggregate of the cost amounts to the person and related person(s) of all of the shares of the Company or related corporation totals less than $25,000. For purposes of determining whether a person would be a connected shareholder, the person is deemed to own the shares owned by non-arm's length persons (including his or her RRSPs and RRIFs and any RESPs under which he or she is the subscriber or beneficiary).
15. Where a person's RRSP, RRIF or RESP owns a Share of the Company and that person provides services or sells goods to the Company or any corporation related to the Company, the Company will not pay any amount in respect of the Share held by the RRSP, RRIF or RESP where it can reasonably be considered that the amount is being paid in respect of services or goods sold to the Company or to a corporation related to the Company by that person.
16. Once the Company secures the necessary financing, the Company will hire XXXXXXXXXX full-time employees.
17. The Company will issue another progress bill to the Contractor for $XXXXXXXXXX for further design and infrastructure development services that will be provided in the XXXXXXXXXX period.
Purpose of the Proposed Transactions
18. The purpose of the proposed transactions is to help the Company attract investors, including RRSPs, RRIFs and RESPs, to help finance its growth.
19. To the best of your knowledge and the knowledge of the Company, none of the issues involved in this request for an advance income tax ruling:
(a) is in an earlier return of the Company or of a person related to the Company;
(b) is being considered by a tax services office or tax centre in connection with a previously-filed return of the Company or of a person related to the Company;
(c) is under objection by the Company or by a person related to the Company;
(d) is before the courts; or
(e) is the subject of a ruling previously issued by the Income Tax Rulings Directorate to the Company.
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 that the proposed transactions are carried out as described above, we rule as follows:
A. Provided that the annuitant, in the case of a RRSP or RRIF, and the subscriber and beneficiary, in the case of a RESP, are not connected shareholders and provided that, at the time the Shares described in 14 above are issued, the assets of the Company are essentially as described in 10 above, a Share of the Company acquired by the RRSP, RRIF or RESP will, immediately after it is acquired, be a "qualified investment" as prescribed in paragraph 4900(12)(a) of the Regulations for purposes of paragraph (d) of the definition of "qualified investment" in subsection 146(1) of the Act.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content