19 November 1990 Ministerial Correspondence 902994 F - Meaning of "Specified Non-resident Shareholder"

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.

Dear Sirs:

Re:  Subsection 18(4)

This is in reply to your letter of October 18, 1990 concerning the application of subsection 18(4) of the Income Tax Act (the "Act") in the following situation:

Facts

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For the purposes of subsection 18(4) of the Act, you have asked whether Usco qualifies as a "specified non-resident shareholder" of Canco as defined in subsection 18(5) of the Act.

Your views

In accordance with the provisions under subsection 256(6) of the Act, you are of the view that

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This provision allows for shares which are issued strictly as security for an indebtedness to be ignored for the purposes of determining the control of the issuing corporation.

It is your opinion that the provisions of subsection 18(4) were not intended to apply to situations such as the one described above. In your view, although the Act does not provide for a provision similar to that set out in subsection 256(6) of the Act with respect to the ownership of shares in subsection 18(4), such a provision would appear to be as justified and as logical for subsection18(4) as subsection 256(6) is for the purposes of determining the control of a corporation.

Our Comments

Based on our understanding of the facts described above, it is our opinion that for the purposes of subsection 18(4) of the Act,

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Since you are of the view that the provisions of subsection 18(4) of the Act should not apply to financing arrangements such as the one described above, your concerns should be conveyed to the Department of Finance since it is the responsibility of the Minister of Finance to recommend changes to the Income Tax Act.

We trust our comments will be of assistance to you.

Yours truly,

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