27 November 1989 Ruling 58441 F - Associated Corporations Coming-into-force Provisions

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.

November 27, 1989

Dear Sirs:

Re:  Associated Corporation Coming into Force Provisions

This is in reply to your letter dated July 26, 1989, whereby you requested our opinion concerning the following hypothetical situations.

Situation 1

1.     Mother owns 100% of Company "A" whose year end was December 31, 1988.

2.     A trust for a minor child of the above mother owns 100 of Company "B" whose year end was November 30, 1988.  The trustee is an arm's length party.

3.     A has no direct or indirect influence on B.

4.     A and B may carry on similar businesses.  There are, however, no inter-corporate loans or similar holdings.

5.     Both corporations were incorporated prior to February 10, 1988.

Situation 2

1.     The same set of facts apply as above.

2.     A has incorporated a wholly-owned subsidiary in January 1989.

3.     The relationship between A and B has not changed and there is no relationship between the new subsidiary and B.

You are requesting our opinion as to whether the incorporation of the subsidiary subsequent to February 10, 1988 will cause A and B to come under the new associated corporation rules set out in subsections 256(1.1) to 256(1.6) of the Act in their 1989 taxation year.

For purposes of our response we assume that Company A and Company B will be associated with each other by virtue of paragraph 256(1.2)(f) and subsection 256(1.3) of the Act once those provisions come into force as set out in S.C. 1988, C.55, section 192(6).

We are of the opinion that Company A, Company B and Company A's subsidiary will be deemed to be associated with each other by virtue of subsection 256(1) of the Act, for their 1989 taxation years, since Company A's subsidiary was incorporated after February 10, 1988.

These comments are provided pursuant to the practice referred to in paragraph 24 of Information Circular 70-6R.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch