7 November 1989 Ministerial Correspondence 58704 F - Capital Gains Exemption on Qualified Small Business Corporation Shares

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 7, 1989

Dear Sirs:

Re:  Subsections 110.6(1) and 186(2) of the income Tax Act (the "Act")

This is in reply to your letter of September 18, 1989, wherein you requested our opinion concerning the definitions of "qualified small business corporation share" and of "small business corporation" as they are set out in subsections 110.6(1) and 248(1), respectively, of the Act.

These definitions refer to "corporations that are connected with the corporation (within the meaning of subsection 186(4))" and you are requesting our interpretation regarding the determination of the control of a corporation for purposes of subsection 186(4) of the Act.

We are of the opinion that the rules set out in subsection 186(2) of the Act must be applied in order to determine whether two or more corporations are connected within the meaning of subsection 186(4) of the Act.  Although subsection 186(2) of the Act only applies for purposes of Part IV, it is our opinion that reference must be made to the definition of control as contained in that particular provision in order to determine the meaning of "control" for purposes of subsection 186(4) of the Act, since that particular provision is included in Part IV and is thus specifically covered by the provisions of subsection 186(2) of the Act.  Consequently, for the purposes of the definition of "qualified small business corporation" (subsection 248(1) of the Act), we must refer to control as defined in subsection 186(2) of the Act to determine whether corporations are connected within the meaning of subsection 186(4) of the Act.

The above opinion is given in accordance with the practice set out in paragraph 24 of Information Circular 70-6R issued on December 18, 1978.

Yours truly,

for Director Reorganizations and Non-Resident DivisionSpecialty Rulings Directorate Legislative and Intergovernmental Affairs Branch