24 August 1987 Income Tax Severed Letter 5-3273 - ["Grandfathering" provisions concerning proposed subsection 249(4) of the Income Tax Act (the "Act") contained in Bill C-64 as given first reading in the House of Commons of Canada on June 9, 1987 (the "Bill")]

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.

Revenue Canada Taxation

Head Office

A.A. Cameron (613) 957-2121

August 24, 1987

Dear Sirs:

Re: "Grandfathering" provisions concerning proposed subsection 249(4) of the Income Tax Act (the "Act") contained in Bill C-64 as given first reading in the House of Commons of Canada on June 9, 1987 (the "Bill")

We are writing in response to your letter of April 22, 1987 which requested our opinion as to whether a particular agreement dated January 15, 1987 (the "Agreement") submitted with your letter would be "grandfathered" such that the provisions of proposed subsections 69(11), 69(12) and 249(4) of the Act as contained in a Release dated January 15, 1987 issued by the Department of Finance would not apply to the transactions detailed in the Agreement. In our subsequent telephone conversations you have amended your request due to the revised wording of the above-noted proposed provisions in the Bill and asked that we provide an opinion on "grand fathering" only with regard to draft subsection 249(4) of the Act as found in the Bill.

In order for an acquisition of control of a corporation to be "grandfathered", and thereby exempted from the provisions of proposed subsection 249(4) of the Act, clause 70(2) of the Bill requires that such acquisition occur before 1988 and that "... the persons acquiring the control were obliged on (January 15, 1987) to acquire the control pursuant to the terms of agreements in writing entered into on or before ..." January 15, 1987. In our opinion the Agreement does not result in the satisfaction of these requirements and as such any acquisition of control of a corporation thereunder would not be "grand fathered" by the provision of clause 70(2) of the Bill. As indicated in our telephone discussions this view is supported by an opinion we received from our legal advisors at the Department of Justice.

The Agreement appears to be confusing on several issues and to create a number of uncertainties. A reading of the Agreement does not enable one to determine the clear intent of the parties. Evidence outside of the Agreement is necessary to establish the identity of the parties, the subject matter, the consideration, and the validity of the hand- written additions (since they were not initialed by the parties).

As a result of these uncertainties it can be argued that the Agreement does not constitute a binding contract to the purchaser, whether XXXX; and therefore it is difficult to accept that an obligation was created under the Agreement which would satisfy the requirements of clause 70(2) of the Bill.

We regret that our opinion could not have been more favourable on this matter.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch