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 subsection 249(3.1) would apply when two public corporations become the owners of more than 50% of the voting common shares of the capital stock of a taxpayer. The taxpayer had made an election under subsection 89(11) before that time.
Position: No, subsection 249(3.1) would not apply.
Reasons: For the purposes of subsection 249(3.1), there is no change of status of the taxpayer. The taxpayer was already deemed not to be a CCPC for the purposes of subsection 249(3.1) because it made an election under subsection 89(11). See paragraph (d) of the definition of CCPC in subsection 125(7).
XXXXXXXXXX
2014-052317
Sylvie Labarre, CPA, CA
March 27, 2014
XXXXXXXXXX,
Re: Deemed Year-End of a Corporation
This is in reply to your email of March 7, 2014 in which you requested our opinion on whether subsection 249(3.1) of the Income Tax Act (the "Act") would apply under the following circumstances.
A corporation (hereinafter the "taxpayer") was a "Canadian-controlled private corporation" ("CCPC"), as defined in subsection 125(7) of the Act. The taxpayer made an election under subsection 89(11) of the Act. Accordingly, the taxpayer ceased to be a CCPC for certain purposes of the Act. The election has not been revoked under subsection 89(12) of the Act. A few years after the election was made by the taxpayer, two public corporations became the owners of more than 50% of the voting common shares of the capital stock of the taxpayer.
You wish to know whether subsection 249(3.1) of the Act would apply to deem the taxpayer to have a taxation year that ends immediately before the time the two public corporations became the owners of more than 50% of the voting common shares of the capital stock of the taxpayer.
Our comments
This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination. The income tax treatment of transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Where a corporation files an election under subsection 89(11) of the Act on or before its filing due date for a taxation year, the corporation is deemed, for the purposes mentioned in paragraph (d) of the definition of CCPC in subsection 125(7) of the Act, not to be a CCPC at any time in or after the particular taxation year.
Consequently and according to paragraph (d) of the definition of CCPC in subsection 125(7) of the Act, such a corporation would cease to be a CCPC for the purpose of subsection 249(3.1) of the Act.
In the present situation, the taxpayer would be deemed not to be a CCPC for the purposes of subsection 249(3.1) of the Act because of the election made under subsection 89(11) of the Act. Therefore, subsection 249(3.1) of the Act would not apply at the time the two public corporations became the owners of more than 50% of the voting common shares of the capital stock of the taxpayer because the conditions to apply that subsection are not met (at that time, the corporation did not become or cease to be a CCPC for the purposes of subsection 249(3.1) of the Act).
However, the taxpayer would have to determine whether or not its control was acquired at the time the two public corporations became the owners of more than 50% of the common shares of the capital stock of the taxpayer (or at any other time). If this is the case, paragraph 249(4)(a) of the Act would apply to deem the taxation year of the taxpayer to end immediately before that time.
We trust our comments will be of assistance.
Yours truly,
Stéphane Prud'Homme, LL.B, M. Fisc.
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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