5 October 1987 Income Tax Severed Letter 5-3863 - ["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

40366-1

A.A. Cameron (613) 957-2121

October 5, 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 September 14, 1987 (the "Letter") concerning our letter to you of August 24, 1987 which dealt with the above noted matter with regard to an agreement (the "Agreement") submitted by you with earlier correspondence.

As indicated in our earlier letter, 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 the agreements in writing entered into on or before ..." January 15, 1987. As discussed in our telephone conversations it must be remembered that we are looking at the Agreement from the point of view of a third party rather than from that of a party thereto and that, in our view, in order for the Agreement to be "grandfathered" the requirements of clause 70(2) of the Bill must clearly be fully satisfied. In our opinion the factors mentioned in our earlier letter raise sufficient doubts from a third party point of view as to whether these requirements have been so satisfied such that we are unable to provide a favourable opinion thereon.

As previously discussed, the provisions of the Agreement appear to contain inconsistencies or raise uncertainties concerning the points numbered 1 through 3 which you refer to in the Letter. Concerning point number 1, regardless of what the parties to the Agreement may have known their intentions to be, the fact remains that in the body of the Agreement the "Purchaser" is stated to be XXXX.

With regard to point number 2, the preamble to clause number 1 of the Agreement states that only shares are being purchased while the first sentence of clause number 2 of the Agreement refers to shares and debt as being purchased. In the case of point number 3, the first sentence of clause number 2 of the Agreement indicates that the purchase price for the shares/debt is to be calculated in accordance with the price at which the "Property" is sold; however, while the first sentence of clause number 3 of the Agreement appears to require the "Purchaser" to sell the "Property" to a nominee of the "Vendor" for fair market value consideration this point is confused by the last sentence of clause 3 of the Agreement which appears to imply that the "Purchaser" could also sell the "Property" to third parties without any stated requirements that the sale be for fair market value consideration.

Concerning point number 4 referred to by you in the Letter, in our view in order for a particular agreement to constitute an "agreement in writing" as referred to in clause 70(2) of the Bill that agreement should stand alone as a valid contract which specifies all the necessary terms and conditions from both the vendors and the purchasers point of view with regard to the transactions detailed in that agreement. The copy of the "formalized" version of the Agreement, drafted at a date subsequent to January 15, 1987 and which you had submitted earlier, appears to contain quite a number of representations additional to those found in the Agreement, this would appear to imply that all the necessary terms and conditions were not contained in the Agreement and/or that clarifications were needed due to ambiguities in the Agreement.

In summary our views on this matter are as expressed in our letter of August 24, 1987.

Yours truly,

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