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.
Principal Issues: 1. Can a charitable foundation be considered to control a corporation for purposes of paragraph 149.1(12)(a) of the Act, if the foundation does not own any shares of the particular corporation?
2. Does the 5% "safe harbour" rule in subsection 149.1(12)(a) of the Act, apply for purposes of subsection 188.1(3) of the Act?
Position: 1. No
2. Yes
Reasons: The legislation and previous positions
XXXXXXXXXX 2006-017508
Alison Campbell
March 7, 2007
Dear XXXXXXXXXX:
Re: Acquisition of Control of a Corporation by a Charitable Foundation
We are writing in reply to your letter of March 7, 2006, in which you requested our views on the interpretation of subsections 188.1(3) and 149.1(12) of the Income Tax Act (the "Act"). The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
Subsection 188.1(3) of the Act subjects a charitable foundation to the penalty provided therein if at a particular time the foundation has acquired control, within the meaning of subsection 149.1(12) of the Act, of a particular corporation. In determining whether a charitable foundation has "acquired control" of a particular corporation for the purposes of subsection 188.1(3), we can confirm that the entirety of paragraph 149.1(12)(a) of the Act will be taken into account such that a foundation will not be considered to have acquired control of a corporation if it has not purchased or otherwise acquired for consideration more than 5% of the issued shares of any class of the capital stock of that corporation.
In determining whether a charitable foundation has acquired control of a corporation for purposes of paragraph 149.1(12)(a), it is our general view that the foundation would have to own at least one share of the capital stock of the corporation, having full voting rights in all circumstances, in order for the foundation to be considered to control the corporation. In particular, it is our view that the reference in subparagraph 149.1(12)(a)(ii) to "the foundation and persons with whom the foundation does not deal at arm's length" requires that the foundation must own at least one of the requisite type of shares of the corporation, persons with whom the foundation does not deal at arm's length must own at least one of the requisite type of shares of the corporation, and on a combined basis the foundation and persons with whom the foundation does not deal at arm's length must own more than 50% of the requisite type of shares of the corporation, in order for the foundation to be considered to control the corporation.
While the comments provided are not binding on the CRA in connection with any particular transaction, we hope that they will be of assistance.
Yours truly,
F. Lee Workman
Manager
Charitable and Financial Institution Sectors
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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