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.
C. Tremblay (613) 957-2103
DEC 14 1988
Dear Sirs:
Re: Qualified Small Business Corporation Share
This is in reply to your letter of October 28, 1988, requesting our comments as to whether the criteria found in subsection 110.6(1) of the Income Tax Act (the "Act") concerning a "qualified small business corporation share" are met in a situation where a corporation ("A") may wish to have its subsidiary or sister corporation ("B") acquire property for use in A's active business. You are concerned that either the preference shares of B or the loan to B will not be considered in the calculation of active business assets of A because of the operation of clause 110.6(l)(c)(ii)(A) and paragraph 110.6(14)(f) of the Act.
Our Comments
In our opinion, there must be compliance with the holding period test, which requires that the shares of the capital stock or the obligation issued by the connected corporation not have been held by anyone other than the corporation or persons or partnership related to it throughout that part of the 24 month period immediately preceding the determination time. Only after the shares of the capital stock or the obligation issued by B have been held for 24 months by A can they meet the holding test provided for in clause 110.6(l)(c)(ii)(A) of the Act in the definition of a qualified small business corporation share.
As you noted, if corporation A acquires the property directly, the asset is considered a qualified active business asset. However, in your situation, the particular asset has been acquired by Corporation B which may not be subject to the holding period restriction in subparagraph (c)(ii) of the definition in its own determination of satisfying the qualified small business corporation share definition.
We trust our comments are of assistance.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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