28 July 1994 External T.I. 9413205 - 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.

Principal Issues: - Will a new corporation owned by wife be associated with a corporation controlled by husband (but wife owns shares in husband's co)?

Position TAKEN: Wifeco could be associated if wife owns more than 25% of the shares of Husbandco.

Reasons FOR POSITION TAKEN: In accordance with statutes

		   	941320
XXXXXXXXXX	   M.P. Sarazin

July 28, 1994

Dear Sir:

Re: Associated Corporations

This is in reply to your letter dated May 9, 1994 wherein you requested our comments as to whether a corporation which is controlled by an individual and whose wife owns the balance of the shares would be associated, for purposes of the Act, with a new corporation that will be incorporated and owned by the wife.

It appears that the interpretation you seek relates to a proposed transaction to be undertaken by a specific taxpayer and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30,1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for a particular taxpayer with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. However, a request for an advance income tax ruling will not generally be considered where the issue involves a determination of one or more questions of fact. Nevertheless, we can offer the following general comments.

Unless otherwise stated, all references to a statute are to the Income Tax Act S.C. 1970-71-72, c.63, as amended, consolidated to June 10, 1993 (the "Act").

The Department's general views on associated corporations are expressed in Interpretation Bulletin IT-64R3, a copy of which is enclosed for your information.

Where one corporation ("H Co.") is controlled by a person and a second corporation ("W Co.") is controlled by that person's wife then the two corporations would be related for purposes of the Act. However, if the husband owns 25% or more of the issued shares of any class, other than a specified class, of W Co.'s issued share capital or the wife owns 25% or more of the issued shares of any class, other than a specified class, of H Co.'s issued share capital then H Co. and W Co. would be associated corporations pursuant to paragraph 256(1)(c) of the Act. The expression "specified class" is defined in subsection 256(1.1) of the Act.

In addition, H Co. and W Co. will be associated if either the husband or the wife exercises de facto control over the two corporations. In this regard, we would refer you to paragraphs 15 to 19 of IT-64R3 for the Department's views on the concept of de facto control.

Subsection 256(2.1) of the Act also contains an anti-avoidance provision whereby two corporations will be deemed to be associated where it may reasonably be considered that one of the main reasons for the separate existence of the corporations is to reduce the amount of taxes that would otherwise be payable under the Act.

We trust that the above comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch