16 June 1991 Internal T.I. 910629 F - 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.

Dear Sirs:

We are writing in response to your letter dated February 26, 1991 wherein you requested a technical interpretation on the application of sections 84.1 and 110.6 of the Income Tax Act (Canada) (the "Act") to the situation described below.  We apologize for the delay in responding to your request.

Facts

1.     

24(1)2.

3.     

4.     

5.      

6.     

24(1)

7.     

8.     

You have expressed the following views:

A.

B.

24(1)C.

D.

In your letter you have outlined what appears to be an actual fact situation related either to a past transaction or to an actual proposed transaction.  If the situation described relates to an actual transaction which has already been implemented, 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.  If, however, the situation described relates to an actual proposed transaction, it should be the subject of an advance income tax ruling request.  However, we can provide you with the following general comments which we hope will be of assistance.

It is a question of fact whether two persons are dealing at arm's length for the purposes of section 84.1 of the Act.  Although we would generally expect that, subsequent to a divorce, former spouses would be dealing at arm's length for purposes of the Act, this may not be the case with respect to a pre-ordained series of transactions.  The Department's views on the meaning of arm's length are set out in Interpretation Bulletin IT-419.

In order to qualify as a "qualified small business corporation share", the share must have been owned by the taxpayer or a person or partnership related to the taxpayer throughout the 24 months preceding the determination time.  It is our general view that where the share was owned by another person during part of the 24 month period preceding the determination time and that person was related to the particular taxpayer during the period that the share was owned by that person then the condition set out in paragraph (b) of the definition of "qualified small business corporation share" in subsection 110.6(1) would be satisfied even though the taxpayer and the person may not be related at the determination time.

The Department's general views concerning the deductibility of interest following an amalgamation are described in Interpretation Bulletin IT 315.

Without a review of all of the facts, we cannot offer any general comments regarding the application of the general anti-avoidance rule.  Guidance with regards to the application of the general anti-avoidance rule is provided in Information Circular 88-2 and the supplement thereto.

The foregoing comments are provided in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990.

Yours truly,

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