23 August 1991 External T.I. 9118755 F - Transactions that Form Part of a Series of Transactions

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 55(2) of the Income Tax Act (Canada) (the "Act")

We are writing in response to your letter of July 3, 1991 wherein you requested our opinion on whether subsection 55(2) of the Act applies in the following situation.

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Comments

The situation described in your letter appears to involve actual proposed transactions in respect of specific taxpayers. Confirmation as to the tax consequences of actual proposed transactions involving specific taxpayers can only be provided in the context of an advance tax ruling.  The procedures for requesting an advance tax ruling are outlined in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Taxation ("IC 70-6R2").

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It is the Department's position that persons living in a "common-law" relationship are not considered to be married for the purposes of the Act.  It is our view that the word "marriage" contemplates a legal marriage according to the laws of Canada.  In the situation described above, it is a question of fact whether the shareholders are dealing at arm's length with each other and with either Opco or Holdco.  In the situation outlined above, if Holdco deals at arm's length with Opco, or if any shareholder of Opco who acquires an interest in Holdco deals or is deemed to deal at arm's length with Holdco.

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In addition, even if the transactions do not include or result in a disposition of property to, or a significant increase in the interest in any corporation of, a person with whom Holdco deals at arm's length, it is a question of fact whether the transactions will form part of a larger series of transactions, determined with reference to subsection 248(10) of the Act, that includes a disposition of property to any person who deals at arm's length with Holdco.  It is our view that a preliminary transaction will form part of the series of transactions that includes the subsequent transactions if, at the time the preliminary transaction is carried out, the taxpayer has the intention to implement the subsequent transactions and the subsequent transactions are eventually carried out, even though at the time of completion of the preliminary transactions the taxpayer either had not determined all of the important elements of the subsequent transactions such as, for example, the identity of other taxpayers involved, or lacked the ability to implement the subsequent transactions.  If the transactions and an ultimate sale to an arm's length person form part of the same series,

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In our view the provisions of subsection 55(4) of the Act may apply in the above situation if it may reasonably be considered that the principal purpose of one or more transaction or events was to cause the shareholders to be related or to not deal at arms length with each other so that subsection 55(2) of the Act would not be applicable to the

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The comments expressed are not advance income tax rulings and are not considered binding on the Department, in respect of any taxpayer, in accordance with paragraph 21 of IC 70-6R2.

Your truly,

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