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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
SUBJECT: ACQUISITION OF CONTROL SECTION: 249(4)]
913068
B. Kerr
(613) 957-2092
June 4, 1992
Dear XXX
Re: Technical Interpretation - Subsection 249(4)
This is in response to your letter of October 31, 1991 wherein you requested Revenue Canada's interpretation as to the application of subsection 249(4) of the Income Tax Act (the "Act") to the following fact situation. We apologize for the delay in responding.
XXX
You have requested our opinion as to what point in time the acquisition of control occurs. You have suggested that beneficial ownership has occurred on XXX but legal ownership will occur in late XXX
Our comments
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 the 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 the following general comments which we hope will be of assistance to you.
The word "control" as expressed in subsection 249(4) is not defined in the Act. Nevertheless, it is the Department's view as outlined in paragraph 13 of Interpretation Bulletin IT-64R3, that the word "control" generally means the right of control that rests in ownership of such a number of shares as carries with it the right to a majority of the votes in the election of the Board of Directors. Such control is referred to as de jure control.
Although one would normally expect control of a corporation to have been acquired on closing, when the title to the shares passes, it is a question of fact as to when control of a corporation has been acquired and this would normally be determined from the agreement between the vendor and purchaser. As stated in paragraph 4 of Interpretation Bulletin IT-50R the basic rule is that property in respect of specific or ascertained assets passes and is therefore acquired by the purchaser at the time when the parties to the contract intend it to pass as evidenced by the terms of the contract, the conduct of the parties, and any other circumstances. Also as indicated in paragraph 2 of Interpretation Bulletin IT-170R the date of disposition of capital property sold occurs at the time that the vendor is "entitled to...the sale price".
We agree with you that beneficial ownership is important for Income Tax purposes, as evidenced by paragraph 54(c)(v) of the Act and paragraph 31 of IT-64R3 which states that the owners of shares of a corporation are considered to be those persons who are the beneficial owners of such shares. However, the fact that the parties to an agreement have agreed that the agreement is to be effective as of a certain date does not necessarily mean that beneficial ownership to the shares has been passed at that time.
The terms of the agreement, and whether there are any conditions precedent to it, must be reviewed to determine when beneficial ownership has passed. As outlined in paragraph 17 of IT-170R, a purchaser's right to dividends, voting rights and right to a return of capital in the event of the corporation's dissolution are considered to be important factors in determining beneficial ownership.
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 dated September 28, 1990 this is not an advance income tax ruling and is, therefore not binding on the Department.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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