5 September 1990 Administrative Letter 900846 F - Acquisition of Control on Winding-up

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.

September 5, 1990

Dear Sirs:

Re:  Technical Interpretation Request -  Paragraph 88(1)(d) of the Income Tax Act (the "Act")

This is in reply to your letter, dated May 10, 1990, wherein you requested our interpretation of a portion of paragraph 88(1)(d) of the Act in the following hypothetical situation.

A corporation ("Parentco") acquires all the shares of a previously unrelated corporation ("Subco"). Subco's only asset is a piece of real property which, at the time that the shares are acquired, constitutes capital property to Subco. Parentco is a land developer. It has purchased Subco for the purpose of liquidating it to acquire its real estate asset. Parentco proposes to develop or redevelop the real estate as part of its inventory. Subco owns and will continue to operate the property for its own account until Parentco completes the reorganization. The real estate is capital property to Subco but, on its acquisition by Parentco, will be inventory to Parentco.

You requested our views concerning the meaning of the words "a capital property ... owned by the subsidiary at the time that the parent last acquired control of the subsidiary and thereafter without interruption until such time as it was distributed to the parent on the winding-up ..." in paragraph 88(1)(d) of the Act.

We are of the opinion the words quoted above require that a property be capital property to the subsidiary at the time that the parent last acquired control of the subsidiary and that the property be owned by the subsidiary continuously from the time that control is last acquired until the distribution to the parent on the winding-up; they do not require that the property be capital property to the subsidiary continuously from the time that control is last acquired  until the distribution to the parent on the winding-up.

The foregoing response is an opinion in accordance with the practice described in paragraph 24 of Information Circular 70-6R, and is not binding on the Department.

Yours truly,

for Director Reorganizations and  Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch