19 October 1990 Ministerial Letter 902468 F - Change of Control

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.

October 19, 1990

Dear Sirs:

Re:  Subsections 249(4) and 256(7) of the Income Tax Act (Canada) (the "Act")

This is in reply to your letter dated September 7, 1990 in which you requested an opinion regarding the application of subsections 249(4) and 256(7) of the Act to the following situation.

1.     A and B, two unrelated non-resident individuals, each own 50% of the issued shares of a company. There are no agreements or other factors which would give control of the company to either shareholder.

2.     During the current fiscal year, B died and left his shares to his four adult children.

You have requested an opinion as to whether there has been an acquisition of control for the purposes of subsection 249(4) of the Act and if so would either of subparagraphs 256(7)(a)(ii) or 256(7)(a)(iii) of the Act apply to deem that there has not been an acquisition of control for the purposes of subsection 249(4) of the Act.

In your letter you have outlined what appears to be an actual fact situation related to a past transaction. The review of such transactions falls within the responsibility of District Taxation Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. However, we can provide you with the following general comments which we hope will be of assistance to you.

Whether control of a corporation has been acquired by a person or group of persons is a question of fact. It is, however, our view that a group of persons will be considered as having collectively acquired control where there is evidence that they have a common link or interest or they act together to control the corporation. Accordingly, unless one or more of B's four adult children act together with A to control the corporation, we would not expect that there would be an acquisition of control for purposes of subsection 249(4) of the Act.

Where there is an acquisition of shares of a corporation by a person, paragraph 256(7)(a) of the Act deems such person not to have acquired control of the corporation by virtue of such share acquisition if that person is a person described in one of subparagraphs 256(7)(a)(i) to (iv) of the Act. As stated in our response to Question 66 at the 1987 Revenue Canada Round Table, where there is an acquisition of shares of a corporation by more than one person, it is the position of Revenue Canada that those persons will be deemed by paragraph 256(7)(a) not to have acquired control of the corporation by virtue of such share acquisition if each of those persons is a person described in subparagraph 256(7)(a)(i). Accordingly, in the situation where a person receives shares in a manner described in subparagraph 256(7)(a)(i) to (iii) and that person acts in concert with an existing shareholder to control the company then the provisions of paragraph 256(7)(a) would not apply since the existing shareholder would not qualify as a person described in one of subparagraphs 256(7)(a)(i) to (iv) of the Act.

The foregoing comments represent our general views with respect to the subject matter of your letter. As indicated in paragraph 21 of Information Circular 70-6R2 this is not on advance income tax ruling and is, therefore, not binding on the Department.

Your truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch