20 August 1990 Ruling 9016343 F - Dividend Deduction

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.

August 20, 1990

Dear Sirs:

Re: Advance Income Tax Ruling Request 24(1)

This is in reply to your letter of July 20, 1990 and is further to our recent telephone conversation.  You requested an advance income tax ruling on behalf of the above-noted corporations with respect to whether subsection 112(2.1) of the Income Tax Act (the "Act") would apply to deny a dividend deduction under subsection 112(1) of the Act.

As stated in paragraph 3 of Information Circular 70-6R, an advance income tax ruling will be given only in respect of a definite transaction which a taxpayer is contemplating. 24(1)

It is the sole responsibility of the appropriate District Taxation Office to review completed transactions.

The following is a statement of our general view on the meaning of the term "ordinary  course of business" as announced at the 1984 Canadian Tax Foundation Conference, which may be helpful to you:

     Factors that we have considered in establishing whether particular shares were or were not acquired in the ordinary course of business are as follows:

1)     the nature of the holder's activities;

2)     the number and frequency of such share acquisitions by the holder;

3)     whether the funds involved represent the initial capitalization of an new subsidiary or the provision of additional operating capital to a subsidiary, both of which would normally indicate permanent capitalization;

4)     the terms of the shares acquired and their status as "term preferred shares" otherwise than by virtue of control of  the issuer by specified financial institutions; and

5)     whether the shares were acquired as consideration on the sale of a business or part of a business where the holder's business has not previously included such transactions.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate