12 June 1989 Ministerial Correspondence 73734 F - Provincial Corporation

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.

Subject:  24(1)

This is in replying to your memorandum of March 9, 1989, wherein you requested our views as to whether 24(1) qualifies for exemption under paragraph 149(1)(d) of the Income Tax Act (the Act).  If 24(1) qualifies for exemption it would not be eligible for the refundable investment tax credit under section 127.1 of the Act. 

We understand the share structure of 24(1) is as follows:

24(1)

Other relevant facts are as follows:

24(1)

Our Views

We confirm our earlier opinion, expressed in our letter dated February 11, 1986 to 19(1) that where the 90% share ownership test is met by the corporation has the right to redeem its preferred shares, it could, for purposes of subparagraph 149(1)(d) of the Act, be considered that "a person other than Her Majesty in right of Canada or a Province of a Canadian municipality had during the period, a right under a contract, in equity or otherwise either immediately or in the future an either absolutely or contingently, to or to acquire, shares or capital of that corporation".  As a result such a corporation would not qualify for exempt status by virtue of subparagraph 149(1)(d)(i) of the Act.

Our interpretation of subparagraph 149(1)(d)(i) is consistent with our understanding of the intent of that provision.  We understand that subparagraph 149(1)(d)(i) is intended to preclude exempt status to a corporation which is financed or funded by a Province or Canadian municipality purchasing redeemable preferred shares.

It is our view that 24(1) would not qualify for exempt status under paragraph 149(1)(d) and would therefore not be precluded from qualifying for the refundable investment tax credit under section 127.1 of the Act specifically provide that refundable investment tax credit may be earned by a taxable corporation controlled by a tax-exempt entity.  Consequently, the fact that 24(1) may qualify for the refundable investment tax credit is not in and by itself offensive.

We trust this will be of assistance to you.

for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch