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.
REVENUE CANADA TAXATION
DATE: November 16, 1987
TO: Audit Applications Division Appraisal - Valuations Services Section
FROM: Specialty Rulings Directorate J.C. Clark 957-2091
ATTENTION J.P. Whelly
RE: Small business corporation definition
In your memorandum of September 16, 1987 you requested our opinion on the measurement basis to be applied in interpreting the "... all or substantially all of the assets ..." definition of small business corporation in subsection 248(1) of the Income Tax Act.
Mr. Cudjoe of Winnipeg District Office had pointed out in his August 18, 1987 memorandum to you that paragraph 7 of IT-486 does not provide an answer to this question.
That paragraph states:
7. With regard to 6 above and the expression "all or substantially all of the assets of which were at that time used in an active business", it is the assets of the particular corporation seeking to qualify as a small business corporation which must be used in an active business either by that particular corporation or by a corporation controlled by it. As to the meaning of "all or substantially all of the assets" for purposes of paragraph 70(11)(c), if a corporation has permanently set aside more than 10% of its total assets for investment or non-qualified uses (i.e. uses other than those specified in paragraph 70(11)(c)), it will not qualify as a small business corporation.
The Department has consistently taken the view that the references in the Act to "all or substantially all ..." mean at least 90% of whatever is being measured. In our view, however, it would be inappropriate to adopt a universal standard, whether quantity, cost, fair market value or some other measurement, as the facts of the particular situation should normally dictate what base is more appropriate in the circumstances.
For the purposes of determining whether a corporation qualifies as a small business corporation, it is our view that either of cost or fair market value would be an appropriate method of measuring the assets, based on the apparent intent of the sections of the Act for which this term is relevant; namely, to make allowances for those corporations which had some cash temporarily invested rather than used in the active business of the corporation.
Chief Corporate Reorganizations I Section Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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