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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether there is an acquisition of control when "shelf" corporation issues shares
Position: Generally yes
Reasons: Incorporator is considered to control shelf corporation prior to the issuance of shares
XXXXXXXXXX 2002-011814
G. Watson
January 15, 2002
Dear XXXXXXXXXX:
Re: Acquisition of Control
This is in reply to your facsimile of January 14, 2002 wherein you requested our views on whether we would consider there to be an acquisition of control, for the purposes of subsection 249(4) of the Income Tax Act (Canada) (the "Act"), in the following hypothetical scenario:
- On January 1, Lawyer incorporates XCo as a "shelf"corporation and Lawyer acts as the first director;
- XCo does not issue any shares on incorporation or carry on any business;
- On June 1, Client uses XCo in the course of a transaction, during which XCo issues common shares;
- Lawyer subsequently bills XCo's incorporation fees as a disbursement to Client; and
- Lawyer resigns as director and the shareholders of XCo appoint new directors.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following comments.
In the foregoing situation, and subject to the application of subsection 256(7) of the Act, the Agency would generally take the view that there would be an acquisition of control of XCo for the purposes of subsection 249(4) of the Act when shares of XCo are issued on June 1. In the Agency's view, Lawyer will normally be considered to control XCo prior to this time by virtue of being the incorporator of XCo.
We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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