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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
This is in reply to your letter dated November 8, 1991 with respect to the terms "designated corporation" and "investment property" as defined in subsection 2405(3) of the Income Tax Regulations (the "Regulations"). You have described a situation whereby an insurer ("Insurco") owns 100 per cent of the common shares of a holding corporation ("Holdco") and Holdco owns 100 per cent of the common shares of a general insurer ("Genco"). Your specific concern is whether Genco is a "designated corporation" of Holdco.
Pursuant to the definition of "designated corporation" in subsection 2405(3) of the Regulations, a corporation is a designated corporation of an insurer if the insurer, or the insurer and persons or partnerships that do not deal at arm's length with the insurer, own 30 per cent or more of the common shares of that corporation at any time in the year.
Paragraph (d) of the definition of "investment property" in subsection 2405(3) of the Regulations includes, inter alia, property of an insurer that is
"(i) a share of ... a designated corporation other than a corporation that carries on a business of insurance...
if
(iv) the aggregate value of all investment property of the corporation ... is not less than 75 per cent of the aggregate value for the year of all its property ...
assuming that for the purposes of subparagraph (iv) ... that ... this definition appl(ies) to a corporation ... as though the corporation ... were an insurer."
In the situation described above, Holdco would be a "designated corporation" of Insurco and the shares of Holdco would be "investment property" of Insurco if the requirements of subparagraphs (d)(iv) and (v) of that definition in subsection 2405(3) of the Regulations are otherwise satisfied.
As you noted, the assumption in the postamble of paragraph (d) of the definition of "investment property" in subsection 2405(3) of the Regulations is only for the limited purposes noted therein and does not apply for the purposes of the definition of "designated corporation" in subsection 2405(3) of the Regulations. The assumption of Holdco as an insurer is solely for the purpose of examining the assets and gross investment revenue of Holdco in the context of subparagraphs (d)(iv) and (v) of the definition of "investment property" in subsection 2405(3) of the Regulations. This assumption is necessary as only insurers own "investment property". Since Holdco is not otherwise an insurer, and is not assumed or deemed to be an insurer for any purposes other than noted above, Genco is not a "designated corporation" of Holdco.
Accordingly, in the hypothetical situation described above, the shares of Genco would be "investment property" of Holdco pursuant to paragraph (d) of that definition provided the criteria in subparagraphs (iv) and (v) of that definition are satisfied.
While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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© Her Majesty the Queen in Right of Canada, 1992
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© Sa Majesté la Reine du Chef du Canada, 1992
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