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: Whether the definition in subsection 89(1) for a "public corporation" includes "corporations controlled by public corporations"?
Reasons: A corporation will not be a "public corporation", within the meaning of the definition of that term in 89(1), merely because it is controlled by a corporation that, itself, qualifies as a "public corporation".
September 21, 2012
RE: Definition of a public corporation
We are writing in reply to your e-mail dated July 10, 2012 requesting our view whether, in the circumstances you describe, a subsidiary corporation must make the election referred to in paragraph (c) of the definition “public corporation” in subsection 89(1), in order to qualify as a “Canadian- controlled private corporation” (a “CCPC”), as the term is defined in subsection 125(7), at the time it is acquired by a Canadian resident individual. Unless otherwise stated all statutory provisions referred to herein are to provisions in the Income Tax Act (Canada).
The facts are as follows:
1. A corporation (“Subco”) is a wholly-owned subsidiary of a corporation (“Pubco”), which is a “public corporation” within the meaning of that term in subsection 89(1).
2. None of Subco’s shares are listed on a designated stock exchange in Canada.
3. Subco has never elected to be a “public corporation”.
4. Subco was incorporated in Canada.
5. Pubco will dispose of all the shares of Subco to a Canadian resident individual.
Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed, and are the subject matter of an advance income tax ruling, submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Ruling, dated May 17, 2002. This Information Circular and other Canada Revenue Agency (“CRA”) publications can be accessed on the Internet at http://www.cra-arc.gc.ca. We are, however, prepared to provide the following general comments.
A corporation will not be a “public corporation”, within the meaning of the definition of that term in subsection 89(1), merely because it is controlled by a corporation that, itself, is a “public corporation”. Based on the representations that Subco has never itself satisfied the conditions in paragraphs (a) or (b) of the definition “public corporation”, it will not be a “public corporation” immediately before its shares are acquired by the Canadian resident individual. Therefore, an election under paragraph (c) of the definition “public corporation” is not required.
While Subco is controlled by a public corporation it will also not qualify as a “private corporation” within the meaning of the definition of that term in subsection 89(1). Accordingly, immediately before the shares of Subco are acquired by the Canadian resident individual it will not be a “public corporation” or a “private corporation”. See paragraph 7 of IT-391R “Status of Corporations”.
The acquisition of control of Subco by the Canadian resident individual will cause Subco to become a CCPC since it will be a “Canadian corporation” that is a “private corporation”, (each term is defined in subsection 89(1)).
Moreover, pursuant to subsection 249(3.1) or (4), the taxation year of Subco will end immediately before Subco becomes a CCPC, being the time that control of Subco is acquired by the Canadian resident individual.
We trust our comments will be of assistance.
Fiona Harrison, C.A.
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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