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:
If a corporation redeems 50% of its shares that are held by an estate as a result of the death of a shareholder, and the redemption results in another shareholder acquiring control of the corporation, does 249(4) apply?
Position TAKEN:
Yes. However there is draft legislation which, if passed, would amend subparagraph 256(7)(a)(ii) of the Act and deem the person not to have acquired control in this situation.
Reasons FOR POSITION TAKEN:
Under the current wording of the Act, the person who acquires control of the corporation is not related to the corporation immediately before the redemption of the shares from the estate such that the requirements of 256(7)(a)(ii) of the Act would not be met and there would be an acquisition of control for purposes of subsection 249(4) of the Act.
951355
XXXXXXXXXX A. Seidel
Attention: XXXXXXXXXX
June 26, 1995
Dear Sirs:
This is in reply to your facsimile dated May 16, 1995 in which you requested our views with respect to the application of subsections 249(4) and 256(7) of the Income Tax Act (the "Act").
The situation described in your letter and the interpretation you seek appears to relate to specific taxpayers and completed transactions. The responsibility for the determination of the tax consequences of completed transactions rests with the district tax services office. Accordingly, we are unable to respond to the specific situation described in your letter. Nevertheless, we can offer the following general comments in response to your letter.
Subsection 249(4) of the Act will generally apply to any situation where a corporation acquires any of its shares for redemption or cancellation and the redemption or cancellation results in an acquisition of control of the corporation. Paragraph 256(7)(a) of the Act deems an acquisition of control of a particular corporation not to be an acquisition of control of the particular corporation if one of the exceptions outlined in subparagraphs 256(7)(a)(i) or (ii) of the Act is met. The exception in subparagraph 256(7)(a)(ii) of the Act specifically deals with the situation where the shares of a corporation are redeemed or cancelled.
Therefore, in the situation where a person acquires control of a particular corporation as a result of the redemption or cancellation of any of the shares by the particular corporation and that person was not related to the particular corporation immediately before the redemption or cancellation, it is our view that the requirements of subparagraph 256(7)(a)(ii) would not be satisfied. Accordingly, the person will acquire control of the particular corporation at that time and subsection 249(4) of the Act will apply such that the taxation year of the particular corporation shall be deemed to have ended immediately before the time of the redemption or cancellation.
On April 26, 1995 the Minister of Finance released draft legislation which includes proposed amendments to subparagraph 256(7)(a)(ii) of the Act. The proposed amendment provides that in the situation where a person acquires control of a particular corporation as a result of the redemption or cancellation of any of the shares by the particular corporation and that person was related to the particular corporation immediately before the death of a person whose shares were held immediately before the redemption by an estate that acquired the shares because of the person's death, the person will be deemed not to have acquired control of the corporation for purposes of subsection 249(4) of the Act. The proposed amendment is to apply to the 1994 and subsequent taxation years.
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
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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