26 April 1994 External T.I. 9406935 - 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.

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.

940693
XXXXXXXXXX A. Seidel

Attention: XXXXXXXXXX

April 26, 1994

Dear Sirs:

This is in reply to your letter dated March 7, 1994 requesting our views as to whether two corporations are associated within the meaning of subsection 256(1) of the Income Tax Act. Unless otherwise stated, all references to statute are to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act").

Pursuant to paragraph 256(1)(b) of the Act, two corporations are associated if they are controlled, directly or indirectly in any manner whatever, by the same person or group of persons. The expression "controlled, directly or indirectly in any manner whatever" is defined in subsection 256(5.1) of the Act and the Department's views as to when this expression applies to a specific situation are discussed in paragraphs 15-19 and 21 of Interpretation Bulletin IT-64R3. Subject to certain specified exceptions, a corporation will be considered to be "controlled, directly or indirectly in any manner whatever" pursuant to subsection 256(5.1) of the Act if a person or group of persons "... has any direct or indirect influence that, if exercised, would
result in control in fact of the corporation".

Whether or not a person or a group of persons has any direct or indirect influence that, if exercised, would result in control of a corporation is a question of fact that can only be determined by reviewing all of the facts in a particular situation. For example, the ability of an individual (in your example, Mr. B) to control the day to day management and operation of two corporations may be an indication of such influence. In addition, other factors such as the relationship between the shareholders of the two corporations might indicate such influence. Such influence may exist without the ownership of any shares. In your example, if any of Mr. A, Mrs. A, Mr. B or Mr. A and Mrs. A together have any influence that, if exercised, would result in control in fact of Opco 1 and Opco 2, then Opco 1 and Opco 2 would be associated pursuant to paragraph 256(1)(b) of the Act.

Subsection 256(2.1) of the Act may also apply to deem two corporations to be associated where it is determined that one of the main reasons for their separate existence is to reduce the amount of taxes payable under the Act or to increase the amount of refundable investment tax credit under section 127.1 of the Act in a taxation year.

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

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch