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 a provincial Crown corporation without share capital is a permitted shareholder of a corporation exempt from tax under paragraph 149(1)(o.2).
Position: Yes.
Reasons: Under the enabling legislation, the provincial government is deemed to own all property of the Crown corporation for all purposes.
XXXXXXXXXX 2019-082981
K. Koh
August 18, 2020
Re: Paragraphs 4802(1)(e) and (g) of the Income Tax Regulations
Dear XXXXXXXXXX:
This is in reply to your letter dated October 24, 2019 in which you requested our views on whether a corporation wholly owned by certain corporations, one of which is an agent of Her Majesty in right of a Province (the “Crown”), is exempt from tax under paragraph 149(1)(o.2) (footnote 1) in two hypothetical situations.
The facts as described in your letter and clarified in further telephone discussions are as follows:
- The XXXXXXXXXX (“Aco”) is a corporation without share capital that was created under, and governed by provincial legislation – in particular the XXXXXXXXXX (the “Enabling Legislation”).
- Pursuant to XXXXXXXXXX of the Enabling Legislation, all property acquired or administered by Aco is deemed to be the Crown’s property for all purposes, including exemption from taxation (the “Deemed Ownership Provision”).
- Pursuant to XXXXXXXXXX of the Enabling Legislation, Aco is an agent of the Crown.
- Aco is not a person described in any of paragraphs 4802(1)(b), (c) or (d) of the Income Tax Regulations (the “Regulations”).
The following are details of the hypothetical scenarios described in your letter:
Scenario 1:
- Invesco is a corporation with share capital described in any of subparagraphs 149(1)(o.2)(i), (ii), (ii.1) or (iii). All the shares of Invesco are currently owned by persons described in paragraph 149(1)(o.2)(iv).
- Aco is considering purchasing shares of Invesco, which it would hold in its capacity as an agent of the Crown.
Scenario 2:
- Same facts as Scenario 1, except that Aco’s investment in Invesco would be made indirectly through another corporation (“Holdco”), a wholly-owned subsidiary corporation of Aco with share capital.
- Holdco would purchase shares of Invesco, which Holdco would hold in its own capacity.
- Holdco is not a person described in any of clauses 149(1)(o.2)(iv)(A), (B) or (C), nor is it an agent of the Crown.
You wish to ensure that the investments described in Scenarios 1 and 2 would not jeopardize the tax-exempt status of Invesco under paragraph 149(1)(o.2) and seek confirmation that Aco and Holdco would be “prescribed persons” described in clause 149(1)(o.2)(iv)(D).
In Scenario 1, you took the position that Aco, as an agent of the Crown, should itself be considered to be the Crown, which is a “prescribed person” pursuant to paragraph 4802(1)(e) of the Regulations. In Scenario 2, you took the position that the Crown is deemed to be the shareholder of Holdco pursuant to the Deemed Ownership Provision. As a result, you concluded that Holdco is a “prescribed person” pursuant to paragraph 4802(1)(g) of the Regulations.
Our Comments
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer 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 70-6R9, Advance Income Tax Rulings and Technical Interpretations.
A corporation that is exempt from tax under paragraph 149(1)(o.2) may only have shareholders that are described in subparagraph 149(1)(o.2)(iv), which includes a “prescribed person” under clause (D).
Paragraph 4802(1) of the Regulations sets out the list of “prescribed persons” for this purpose. Her Majesty in right of a Province is a “prescribed person” under paragraph 4802(1)(e) of the Regulations. A corporation all of the shares of the capital stock of which are owned by certain enumerated persons, one of which is Her Majesty in right of a Province, is also a “prescribed person” pursuant to paragraph 4802(1)(g) of the Regulations.
Scenario 1:
We agree with your conclusion that the proposed investment by Aco in Invesco’s shares would not jeopardize Invesco’s tax-exempt status under paragraph 149(1)(o.2). By virtue of the Deemed Ownership Provision in the Enabling Legislation that deems the Crown to own all of Aco’s property, the Crown would be considered to own any shares of Invesco acquired by Aco. Thus, since the Crown is a “prescribed person” under paragraph 4802(1)(e) of the Regulations, the shares of Invesco would be owned by a person described in subparagraph 149(1)(o.2)(iv).
It should be noted that our position to give effect to the Deemed Ownership Provision for the purposes of paragraph 149(1)(o.2) is based on the specific wording of this provision, and a review of the overall purpose of the Enabling Legislation and paragraph 149(1)(o.2). This position is limited to this specific context, and should not be extrapolated to a different context.
Since we are able to reach a favourable conclusion on Invesco’s tax-exempt status by relying on the Deemed Ownership Provision, it is unnecessary to consider your submission that Aco, as an agent of the Crown, is itself the Crown.
Scenario 2:
We agree with your conclusion that the proposed investment by Holdco in Invesco’s shares would not jeopardize Invesco’s tax-exempt status under paragraph 149(1)(o.2). Holdco would be a “prescribed person” under paragraph 4802(1)(g) of the Regulations, because the shares of Holdco acquired by Aco would be deemed to be owned by the Crown by virtue of the Deemed Ownership Provision.
We trust our comments will be of assistance.
Yours truly,
Dave Wurtele
Section Manager
For Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Unless otherwise stated, all statutory references in this document are to the Income Tax Act (the “Act”).
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