3 August 1988 Income Tax Severed Letter 5-6299 - [880803]

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

XXX

August 3, 1988 B. Fioravanti (613)957-8962

Dear Sirs:

This is in reply to your letter of July 8, requesting our views as to whether an "advance" is included in the expression "... a bond, debenture, bill, note, mortgage, hypothec or similar obligation issued by such a connected corporation ...," which forms part of the definition of "small business corporation" in subsection 248(1) of the Income Tax Act (the "Act"). For purposes of your query, you have asked us to assume that the sole assets of A Limited consist of shares of and advances (not evidenced by a promissory note) to a small business corporation.

The assumptions appear to describe an actual fact situation involving a specific taxpayer and, as such, should be directed to the district taxation office together with all the documentation and names of the parties involved. However, we are prepared to offer some general comments in respect of our interpretation of the aforementioned expression and the application of the ejusdem generis rule.

The ejusdem generis rule means that the generic or collective expression which contemplates an enumeration is confined to things of the same nature as those in the enumeration even if, by its nature, this generic or elective expression can be extended much further. In this regard, you may wish to refer to G.T.E. Sylvania Canada Ltd. v. The Queen 74 DTC 6315 for a detailed explanation of the rule and an example of the application.

The fundamental difference between bond, debenture, bill, note, mortgage, hypothec and advance, as defined in Black's Law Dictionary, in our view, is as follows. Bonds, debentures, bills, notes, mortgages and hypothecs are instruments that evidence a debt or loan and are issued by the borrower. Such debt or loan is repayable at maturity. An advance is defined as "moneys paid before or in advance of the proper time of payment; money or commodities furnished on credit". Based on the definitions, it is our view that an advance is not a "similar obligation" within the meaning of the term in the definition of "small business corporation" in subsection 248(1) of the Act.

The foregoing is merely an expression of opinion and is not binding on the Department. However, we trust that these comments will be of some assistance.

Yours truly,

for Director Financial Industries Division Rulings Directorate