22 January 1990 Ministerial Letter 58208 F - Investment Tax Credit

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.

January 22, 1990

Dear Sirs:

Re:  Investment Tax Credit

This is in reply to your letter of June 2, 1989 and further to our telephone conversation of November 13, 1989 (Thornley concerning your request for a technical interpretation with respect to subsection 127(10.1) of the Income Tax Act (the "Act").

In your view, because of the decision in the Holiday Luggage Manufacturing Company ("Holiday Luggage") case, 86 DTC 6601, the taxable incomes of association non-resident corporations would not be included in determining whether the group of associated corporations meet the $200,000 limit under subsection 127(10.1) of the Act.

Our Comments

The Department is of the view that a foreign corporation is a "corporation" and a "person" for purposes of the Act. 

As discussed with you over the telephone, the Department did not appeal the Holiday Luggage case because the proposed (at that time) amendment to subsection 256(2) of the Act provided, in essence, that Holiday Luggage and Falcon Luggage would not, for purposes of section 125 of the Act, be associated by reason of their relationship with the foreign corporation, Stradellina. This is accomplished for purposes of section 125, by deeming the foreign corporation not to be associated with the two Canadian-controlled private corporations and by deeming its business limit to be nil.

Although for purposes of section 125 the amendment to subsection 256(2) would have the effect of deeming an associated foreign corporation to have a `nil' business limit it would not have the effect of reducing the foreign corporation's taxable income to nil.  Thus in the circumstances of your enquiry the associated non-resident corporation's taxable income would in our view have to be included in determining whether the associated group of corporation met the $200,000 limit under section 127(10.1) of the Act.  In this respect, it is understood that "taxable income" refers to taxable income pursuant to Part 1 of the Act.

We trust our comments will be of assistance to you in this matter.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch