24 April 1990 Internal T.I. 74129 F - Capital Gains Exemption - Definition of "Qualified Small Business Corporation Share"

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:  Subsection 110.6(1) Definition of "Qualified Small Business Corporation Shares"

The purpose of this memorandum is to document the following comments on the definition of qualified small business corporation shares ("QSBC Shares") in subsection 110.6(1) of the Act.

(i)     "Connected With"

     The "50% or more" test in paragraph (c) of the definition of QSBC Shares is in respect of active business assets (subparagraph (i)), shares or issued debt obligations of connected corporations (subparagraph (ii)), or a combination thereof (subparagraph iii). Where the corporation whose shares are being examined (hereinafter, the "basic corporation") does not hold "all or substantially all" of its assets as active business assets, then shares or issued debt of connected corporations qualify as "active business assets" (collectively "qualifying assets") in the hands of the basic corporation only if the connected corporation itself holds "all or substantially all" of its assets in qualifying assets (paragraph (d)).

     The test for connected corporations is set out in subsection 186(4) of the Act, and the Department has taken the position that subsection 186(2) is relevant for these purposes.

     21(1)(b)

     21(1)(b)

     21(1)(b)

(ii)     "Anyone"

     Paragraph (b) of the definition of QSBC shares requires that a share, to qualify as a QSBC share at the determination time, have not been owned by anyone other than the individual or a person or partnership related to the individual, and such test must be met throughout the 24-month period preceding the determination time. Clearly this provision contemplates that a partnership would be an "anyone". "Anyone", in common usage, means any person.  A partnership is not, at law, a person, but a relationship between persons. The Act is generally consistent in acknowledging that distinction.

     21(1)(a)

M.A. Hiltzfor Director GeneralSpecialty Rulings DirectorateLegislative and Intergovernmental  Affairs Branch