3 October 1988 Income Tax Severed Letter 5-6290 - [Subsection 249(4) of the Income Tax Act]

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.

XXXX

M.F. Symes (613) 957-2110

XXXX

OCT 3 1988

Dear Sirs:

Re: Subsection 249(4) of the Income Tax Act (Canada) (the "Act")

This is in reply to your letter of July 6, 1988 concerning the application of subsection 249(4) of the Act to a situation which can be summarized as follows:

1. 2. 3. XXXX 4. 5. 6. 7. 8.

XXXX

Our comments

As your letter deals with actual fact situations and proposed transactions, your request should have been the subject of an advance income tax ruling. The procedures and requirements for obtaining an advance income tax ruling are set out in Information Circular 70-6R issued December 18, 1978 by Revenue Canada - Taxation. We are, however, prepared to offer the following comments concerning the proposed transactions described in your letter:

1. You requested confirmation that the children of XXXX would be deemed by subparagraph 256(7)(a)(i) of the Act not to have acquired control of A Co. by virtue of the distribution of the A Co. shares to them by the trust.

Whether or not the subparagraph 256(7)(a)(i) exception would apply in that situation would depend upon whether each of the children of XXXX receiving the shares was related to A Co. immediately before the acquisition by them of the shares, which would in turn depend upon which person or group of persons controls A Co. at that time. It is our view that where shares of a corporation are held in trust, control of the shares generally rests with the trustees, and that it is necessary to review all of the circumstances, including the terms of the trust, in order to determine which trustee or group of trustees controls the shares owned by the trust.

2. You also requested confirmation that, for purposes of subsection 249(4) of the Act, control of B Co would not be considered to have been acquired by a person or group of persons as a result of the distribution of the shares of A Co by the trust to the children of XXXX.

It is our view that the word "control" as used in subsection 249(4) of the Act generally means the right of control that rests in ownership of such a number of shares of a corporation as to give a majority of the voting power in the corporation. However, it is our view that in certain circumstances a person or group of persons holding less than a majority of the voting power in a corporation may nevertheless control the corporation for purposes of subsection 249(4) of the Act.

Accordingly, in the situation you described, a determination that the beneficiaries of the trust would not acquire control of B Co. as a result of the distribution by the trust of the shares of A Co. could only be made after a review of all the circumstances.

The above comments are based only on the provisions of the Act referred to above and should not be interpreted as implying that any other provision of the Act would or would not apply to, or as a result of, any actual transactions or events similar to those described in the situation above.

In accordance with the practice described in paragraph 24 of Information Circular 70-6R, the foregoing responses are opinions and not rulings.

Yours truly,

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