15 January 1992 Income Tax Severed Letter 9132835 - Capital Gains Exemption

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: CAPITAL GAINS EXEMPTION Section(s): 110.6(1)]

913283
H. Woolley
(613) 957-2139

XXX

Attention: XXX

January 15, 1992

Dear Sirs:

Re: Subsection 110.6(1) of the Income Tax Act (the “Act”)

This is in reply to your letter dated November 27, 1991 in which you requested our opinion on the definition of “qualified small business corporation share” (“QSBCS”) in subsection 110.6(1) of the Act. Specifically, you inquire whether a Canadian-controlled private corporation which carries on an active business in Canada in partnership with another corporation should consider its proportionate share of the assets of the partnership to be assets used in an active business carried on by it. Also, if the partnership leases assets from the parent corporation of the corporate partner for use in its active business, are these assets considered to be used in an active business of the corporate partner?

It is our view as stated in paragraph 6 of Interpretation Bulletin IT486R, dated December 31, 1987 that “where a corporation has a partnership interest as one of its assets, it is the underlying partnership assets (to the extend of the corporation's interest therein) that are used in determining whether all or substantially all of the corporation's assets are used in an active business. Provided that these assets are used in an active business carried on primarily in Canada by the partnership, they will qualify” It is also our opinion that for the business to be carried on by the corporation there must be no legal impediment to the corporation's involvement in the business as may be the case with a limited partnership interest.

Accordingly, assets leased by the partnership for use in its active business will be considered to be used in an active business carried on by the corporate partner. If these assets are owned by a corporation related to the corporate partner they will be considered to be “assets used principally in an active business carried on primarily in Canada by the corporation or by a corporation related to it”, as described in subparagraph c(i) of the definition of QSBCS in subsection 110.6(1) of the Act.

We trust our comments are of assistance.

Yours truly,

E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch