5 November 1993 External T.I. 9305985 F - Associated Corporations

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:

RE:  Associated corporations

This is in reply to your letter of February 10, 1993 wherein you requested our opinion on the application of subsection 256(2) of the Income Tax Act (the "Act") to the following hypothetical fact situation:

-     Mr A and Mr B are brothers - Mr A owns 100% of Aco Mr B owns 100% of Bco - Aco and Bco each owns 50% of Cco - Cco owns 100% of Dco - Dco is the only corporation with active business operations

You asked whether Cco could elect under subsection 256(2) not to be associated with either Aco or Bco. Should such an election be made, you asked whether Dco would continue to be associated with Aco and Bco, whether Aco would continue to be associated with Bco and whether Cco would continue to be associated with Dco. You also asked whether both Cco and Dco could elect under subsection 256(2) not to be associated with Aco and Bco.

Our Comments:

In the above example, Aco and Bco are associated with Cco by virtue of paragraph 256(1)(d) of the Act. Aco and Bco are then associated with each other by virtue subsection 256(2).

Similarly, Aco and Bco are associated with Dco by virtue of paragraph 256(1)(d). Cco and Dco are associated with each other by virtue of paragraph 256(1)(a) of the Act.

Even if Cco elects under subsection 256(2) not to be associated with either Aco or Bco, Dco would continue to be associated with Aco and Bco by virtue of paragraph 256(1)(d) and, therefore, Aco and Bco would continue to be associated with each other by virtue of subsection 256(2), unless Dco also elects under subsection 256(2) not to be associated with either Aco or Bco. Cco and Dco can each make a separate election under subsection 256(2) of the Act not to be associated, for the purposes of section 125 of the Act, with Aco and Bco.

We trust the above comments will be of assistance.

As stated in paragraph 21 of Information Circular 70-6R2 dated September 28, l990, the opinions expressed in this letter are not rulings and are consequently not binding on the Department.

Yours truly,

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch