Principal Issues: A non-resident corporation ("USCO") owns all of the issued and outstanding shares of a Canadian corporation ("CANCO"). CANCO's fiscal period ends on XXXXXXXXXX of each year. On XXXXXXXXXX , USCO disposed of 50% of its CANCO shares in favour of another Canadian corporation ("HOLDCO"), with retroactive effect to XXXXXXXXXX . No non-resident person and/or public corporation and/or corporation described in paragraph (c) of the definition of Canadian-controlled private corporation ("CCPC") has, directly or indirectly, an interest in HOLDCO. Furthermore, no class of the shares of the capital stock of CANCO or HOLDCO is listed on a prescribed stock exchange. Whether CANCO would qualify as a CCPC as of XXXXXXXXXX or as of XXXXXXXXXX
Position: For Canadian tax purposes, the parties to an agreement can only stipulate that the contract is to take effect at a date earlier than the signing date if they reached a definitive agreement, a legally binding agreement, on this earlier date (the effective date) regarding the essential elements of the contract. Consequently, it is possible that, in the given situation, the disposition of the CANCO shares occurred on XXXXXXXXXX . This disposition of the CANCO shares would normally result in an acquisition of control of CANCO. Based on subsection 256(9) of the Act and assuming that no election under this provision would have been filed, the acquisition of control of CANCO would be deemed to occur at the commencement of the day. Consequently, under paragraph 249(4)(a) of the Act, CANCO's taxation year beginning on XXXXXXXXXX would be deemed to have ended on XXXXXXXXXX . Furthermore, under paragraph 249(4)(b) of the Act, a new taxation year of CANCO would be deemed to have commenced on XXXXXXXXXX . Based on the above, it is possible that CANCO would qualify as a CCPC as of XXXXXXXXXX . However, CANCO would still not qualify as a CCPC if it is established that, after this date, USCO has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently described in paragraph 251(5)(b) of the Act with respect to CANCO shares held by HOLDCO. Furthermore, CANCO would still not qualify as a CCPC if it is determined that, after XXXXXXXXXX , CANCO is controlled, directly or indirectly in any manner whatever, by USCO, within the meaning of subsection 256(5.1) of the Act.
Reasons: Wording of the Act and previous positions.