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
S. Leung (613) 957-2116
XXXX
MAR 9 1989
Dear Sirs:
Re: Subparagraph 256(7)(a)(i) of the Income Tax Act (Canada) (the "Act")
This is in reply to your letter of January 19, 1989 wherein you requested our interpretation of the above noted subparagraph of the Act in the two following hypothetical situations.
In situation I, all of the shares of a corporation wholly-owned by a father are acquired by his two sons on an equal basis. You requested our views as to whether subparagraph 256(7)(a)(i) of the Act would apply to deem the sons not to have acquired control of the corporation. In particular, you requested our interpretation as to whether the word "person" as used in subparagraph 256(7)(a)(i) of the Act would be interpreted as including "group of persons".
It is our opinion that the reference in subparagraph 256(7)(a)(i) of the Act to "person" also includes "persons". Where there is an acquisition of shares of a corporation by a group of persons, it is generally our opinion that those persons will be deemed by subparagraph 256(1)(a)(i) of the Act not to have acquired control of the corporation by virtue of such share acquisition if each of those persons was related to the corporation immediately before the share acquisition otherwise than by virtue of a right referred to in paragraph 251(5)(b) of the Act.
In situation II, X and Y are brothers. X controls Co. A and Co. A controls Co. B. Y controls Co. C and Co. C controls Co. D. Co. D acquires all of the shares of Co. B from Co. A.
We agree with your view that subparagraph 256(1)(a)(i) of the Act would deem Co. D not to have acquired control of Co. B because Co. D and Co. B are related immediately before the share acquisition. However, Y and Co. C would be considered to have acquired indirect control of Co. B because subparagraph 256(7)(a)(i) would have no application as there was not an acquisition of the shares of Co. B by either Y or Co. C. and there was a change in the ultimate control of Co. B.
The foregoing comments are not rulings and in accordance with the guidelines explained in Information Circular 70-6R dated December 18, 1978, are not binding on the Department.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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