7 May 1993 External T.I. 9305065 F - Change of Control

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

This is in reply to your letter dated February 17, 1993 with respect to the issue of direct and indirect changes of control and how these changes would affect the deductibility of a corporation's non-capital losses.

It is our view, as outlined in paragraph 13 of Interpretation Bulletin IT-64R3, that the word "control" as expressed in subsection 111(5) of the Income Tax Act (the "Act") generally means the right of control that rests in the ownership of such number of shares of a corporation as to give a majority of the votes in the election of the Board of Directors of the corporation. In addition, the provisions of subsection 256(1.2) of the Act do not apply for purposes of determining whether there has been an acquisition of control.

In addition, as outlined in paragraph 33 of IT-64R3, it is possible for a person to control a corporation without ownership of any of its shares, provided that person controls one or more other corporations which, either singly or between them, have voting control of the first corporation. This position is consistent with the reasoning adopted by the courts in Vineland Quarries and Crushed Stone Limited v. MNR, 66 DTC 5092 (Ex. Ct.), affirmed by 67 DTC 5283 (S.C.C.). Such control is referred to as indirect control.

Whether control of a corporation has been acquired by a person or a group of persons is a question of fact. In the situation where no one person controls a corporation, it is our view that a group of persons will be considered to have collectively acquired control of a corporation where there is evidence that they have a common link or interest or they act together to control the corporation. Whether a group of persons have a common link or interest or act together is a question of fact which can only be determined by reviewing all of the relevant facts relating to a given situation.

In the situation where an unrelated group of persons controlled a corporation ("Co. B") indirectly through another corporation ("Co. A") and subsequent to a "butterfly" transaction then controls Co. B directly, it is our view that for purposes of subsection 111(5) of the Act the unrelated group of persons will not generally have acquired control of Co. B.

These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch