17 July 1992 Income Tax Severed Letter 9220525 - Small Business Development Bond

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.

922052
F.Francis
24(1) (613) 957-8971

Attention: 19(1)

July 17, 1992

Dear Sirs:

Re: 24(1)

This is in reply to your letter of June 24, 1992, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer concerning the proposed issuance of a small business development bond. As noted in Information Circular 70-6R2, we do not issue advance income tax rulings with respect to proposed legislation. However, we will issue an opinion as to whether 24(1) is in financial difficulty for purposes of the proposed legislation. It should be noted that the following information is required in order to enable the Department to determine whether a company is in financial difficulty;

1. Statement of fact that:
• a) the company is a Canadian controlled private corporation; b) that the proceeds of the loan will be used to refinance debts of the company;

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c) the company is in default or is expected to default on a debt held by a person with whom the corporation deals at arm's length, i.e., it cannot reasonably be expected to make payments on its obligations as they become due; d) the company is unable to obtain any further financing fromnon- related parties, e.g. bank financing.
• 2. An indication of when and under what jurisdiction the company was incorporated.
• 3. An indication of who the shareholders are and that they and/or any associated companies are not in a position to provide further financing to the company.
• 4. A brief description of the business of the company and the reason for its financial difficulty.

5. Recent financial statements of the company.
6. a) An indication of the amount of the proposed borrowings;
b) name of the lender;
c) terms of the loan.

• 7. Yearly cash flow projections that extend from 3 to 5 years.
• 8. Any other statements or information relating to the corporation's financial status.
• 9. A statement that the items are not under objection or under consideration by a District Office.

Upon receipt of the above information, the Department will consider giving an opinion as to whether 24(1) is in financial difficulty for purposes of the proposed legislation.

As indicated in paragraph 11 of Interpretation Bulletin 507 the Department will, within defined parameters, rely upon the reasonable judgement of lenders in determining financial difficulty. Therefore, if lenders are of the opinion that the company is in financial difficulty, it will not be necessary to follow the procedure described above.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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