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: QUALIFIED SMALL BUS. CORP. SHARE-PARTNERSHIP ASSETS SECTION: 110.6(1)]
920559
XXX Glen Thornley
(613) 957-2102
Attention: XXX
May 15, 1992
Dear Sirs:
Re: Subsection 110.6(1) of the Income Tax Act (the "Act")
This is in reply to your fax cover letter of February 25, 1992 with attached facsimile dated December 10, 1991 setting out a hypothetical fact pattern. I refer also to a telephone conversation (Thornley-XXX) of April 24, 1992. Based on the fact pattern you requested a technical interpretation with respect to the application of subsection 110.6(1) of the Act. In particular you asked that we determine if the common shares of CA, owned by A, would be qualifying small business corporation shares as that expression is defined in subsection 110.6(1) of the Act.
As discussed with you, the example which you set out is quite specific and it appears that it may relate to a particular contemplated transaction. Assurance as to the tax consequences of a contemplated transaction can only be given in response to a request for an advance income tax ruling. The procedure for requesting an advance income tax ruling is outlined in Information Circular 70-6R2, published by Revenue Canada, Taxation on September 28, 1990. If you wish to obtain a binding commitment with respect to an actual case with facts similar to your example, an advance income tax ruling application should be submitted.
Although we are unable to provide any binding assurance here with respect to the queries you have raised, we do provide the following general comments for your information.
During our telephone conversation you inquired 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 a corporation connected or related to a 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 IT-486R, 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 extent 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 will be of assistance to you.
Yours truly,
E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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