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:
1.Whether a corporation will be exempt from tax under paragraph 149(1)(d) if not less than 90% of its shares are owned by another corporation that is an agent of the provincial Crown.
2.Whether loans made to a corporation by an agent of the Crown would constitute "capital" within the meaning of paragraph 149(1)(d).
Position TAKEN:
1.Corporation will be exempt from tax.
2.A loan would not constitute capital.
Reasons FOR POSITION TAKEN:
1.A corporation may qualify pursuant to paragraph 149(1)(d) of the Act where not less than 90% of the shares or capital of the corporation is owned by Her Majesty in right of Canada or a province or by a Canadian municipality. The expression "Her Majesty in right of a province" includes agents of Her Majesty in right of the province.
2.Not capital under generally accepted accounting principles.
3-943135
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
July 6, 1995
Dear Sir:
Re:Advance Income Tax Ruling Request
XXXXXXXXXX
We are writing in reply to your letter of November 24, 1994, wherein you requested an advance income tax ruling on behalf of the above-mentioned corporation. Specifically, you asked us to rule that XXXXXXXXXX would, by virtue of paragraph 149(1)(d) of the Income Tax Act (the "Act"), be exempt from tax under Part I of the Act, provided that, at all relevant times, not less than 90% of the issued shares of XXXXXXXXXX are owned by XXXXXXXXXX You also asked us to rule that XXXXXXXXXX would be exempt from tax under Part I of the Act by virtue of paragraph 149(1)(d) of the Act, if not less than 90% of the issued shares of XXXXXXXXXX were owned by a wholly-owned subsidiary of XXXXXXXXXX and that shareholder loans would be considered capital for purposes of paragraph 149(1)(d) of the Act.
As we indicated during our telephone conversation (Chouinard/XXXXXXXXXX), we cannot give you an advance income tax ruling, since
XXXXXXXXXX
The Department does not generally provide an advance income tax ruling where the transaction that is proposed will be completed at some indefinite future time or where satisfactory evidence is lacking that a proposed transaction is being seriously contemplated. Accordingly, a refund of your deposit will be sent under separate cover.
As per your request, we are providing you instead with our general views regarding paragraph 149(1)(d) of the Act. We stress that the following comments are necessarily of a general nature and are not binding on the Department.
A corporation may qualify pursuant to paragraph 149(1)(d) of the Act where not less than 90% of the shares or capital of the corporation are owned by Her Majesty in right of Canada or a province or by a Canadian municipality. The expression "Her Majesty in right of a province" includes agents of Her Majesty in right of the province. Accordingly, if a corporation that is an agent of the provincial Crown acquires not less than 90% of the shares of another corporation, the latter corporation will be tax-exempt under paragraph 149(1)(d). Since XXXXXXXXXX is, according to its governing legislation, an agent of the Crown in right of the province, if it acquires not less than 90% of the shares of XXXXXXXXXX will be exempt from tax under paragraph 149(1)(d) of the Act.
Paragraph 1 of Interpretation Bulletin IT-347R2 states that a subsidiary corporation that is wholly-owned by a tax-exempt government organization is also exempt from Part I tax under paragraph 149(1)(d) of the Act. As you noted, paragraph 1 of IT-347R2 also states that, where the incorporating legislation provides, as it does in your situation, that all property acquired and held by the parent corporation vests in Her Majesty in right of Canada or a province or a Canadian municipality, the subsidiary corporation is exempt from Part I tax under paragraph 149(1)(d), not as a subsidiary of a tax-exempt government organization, but as a corporation not less than 90% of the shares of which are owned by Her Majesty. Therefore, in your situation, every wholly-owned subsidiary of XXXXXXXXXX would be exempt from Part I tax because Her Majesty would be considered to own the shares of such subsidiaries.
As regards your question with respect to shareholder loans, paragraph 149(1)(d) exempts organizations where not less than 90% of the organization is owned by Her Majesty or a Canadian municipality. In our view, where the organization is a corporation with share capital, ownership is determined with reference to the corporation's shares and where it is a corporation without share capital, a commission or an association, ownership is determined with reference to the capital of the organization. Accordingly, in our view, a corporation with share capital will qualify as an exempt organization under paragraph 149(1)(d) of the Act only if not less than 90% of its shares are owned by Her Majesty or a Canadian municipality and shareholder loans are inconsequential to this determination. In addition, in our view, loans would not constitute capital for purposes of the ownership test for non-share corporations, commissions or associations.
We trust our comments will be of assistance to you.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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