16 March 1988 Income Tax Severed Letter 5-5398 - [Acquisition of control by a person or group of persons]

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

XXXX

E. Mikhail (613) 957-2118

March 16, 1988

Dear Sirs:

Re: Acquisition of control by a person or group of persons

This is in reply to your letter of January 22, 1988 in which you asked for our views on a hypothetical situation described in your letter. You requested our opinion on whether control of Opco had been acquired for purposes of subsection 249(4) of the Income Tax Act.

The organizational structure of the corporate group is as follows:

Investco 1                     
     50%
       |
       |
       |
Holdco------------------Investco 2
    50%                                    50%
       |
       |
       |
  Opco-------------------Investco 3
                                                50%

Investco 1, 2 and 3 are not related and not associated within the meaning of the Income Tax Act.

Investco 1 acquired Investco 2's 50% interest in Holdco.

You believe that there will be an acquisition of control for purposes of subsection 249(4) of the Act with respect to Holdco. However, you wondered whether in the Department's view there has been an acquisition of control by a person or group of persons of Opco since it can be reasoned that Investco 1 and Investco 3 controlled Opco or Investco 2 and Investco 3 controlled Opco before Investco 1 acquired control of Holdco.

Whether control has been acquired by a group of persons is a question of fact. It is our view that a group of persons will be considered as having collectively acquired control where there is evidence that they have a common link or interest or they act together to control the corporation.

In your example, provided that Investco 3 does not act together with any of the other shareholders of Opco or Holdco, we would not expect that there was an acquisition of control for purposes of subsection 249(4) of the Act.

This is an opinion and not a ruling and is therefore not binding on Revenue Canada, Taxation as commented on in paragraph 24 of Information Circular 70-6R published December 18, 1978.

Yours truly,

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