20 April 1990 Ruling 59471 F - General Anti-avoidance Provision

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.

April 20, 1990

Dear Sirs:

Re:  Subsection 245(2) of the Income Tax Act (the "Act") Request for Technical Interpretation

This is in response to your letter of January 12, 1990 in which you requested our views on the potential application of the general anti-avoidance rule in subsection 245(2) of the Act ("GAAR") to the situation described below.

Facts

1.     

2.     24(1)

3.     

4.     24(1)

5.     

6.

Our Comments

It appears that the above facts relate to a specific proposed transaction.  Assurance as to the tax consequences of specific proposed transactions will only be given in response to a written request for an advance income tax rulings are set in Information Circular 70-6R.  We are, however, providing you with the following general comments relating to the potential application of GAAR to a series of transactions such as the one described above.

In our view, such a series of transactions could, depending on the facts, include transactions which may be characterized as avoidance transactions within the meaning assigned by subsection 245(3) of the Act, their primary purpose being to obtain a tax benefit.

Whether or not any such avoidance transaction could reasonably be considered not to result, directly or indirectly, in a misuse of any provision of the Act or an abuse having regard to the provisions of the Act read as a whole, and would thus be exempt from the application of GAAR by virtue of subsection 245(4) of the Act, cannot be determined without a review of all of the relevant facts and circumstances.

In our view, the interposition of a holding corporation to receive the proceeds of sale of shares to a non-arm's-length corporation would ordinarily not, in and by itself, be considered to result in a misuse of any provision of the Act or an abuse having regard to the provisions of the Act read as a whole.  However, if the interposition of the holding corporation should form part of a larger series of transactions (determined with reference to the extended definition of "series of transactions" is subsection 248(10) of the Act) that includes a sale of the shares of the holding corporation, we would regard the series of transactions as having been designed to thwart the purpose of section 84.1 of the Act and, in our view, GAAR would be applicable to redetermine the tax consequences as may be appropriate in the circumstances.

The above comments reflect our position only with respect to the potential application of GAAR and should not be interpreted as implying that any other provision of the Act would or would not apply to any actual transactions similar to those described herein.

The foregoing expressions of opinion are given in accordance with the practice referred to in paragraph 24 of Information Circular 70-6R dated December 18, 1978 and are not binding on Revenue Canada, Taxation.

Yours truly,

for DirectorReorganizations and Non-resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch