2020 External T.I. 9523405 - DEFINITION OF WHOLLY OWNED SUB

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.

									5-952340
XXXXXXXXXX							J. Teixeira
(613) 957-8953

Attention: XXXXXXXXXX

February 8, 1996

Dear Sirs:

Re: Paragraph 85(1)(e.2) and subsection 85(1.3) of the Income Tax Act (the "Act")

This is in reply to your letter of August 31, 1995 in which you requested our opinion as to whether the definition of "wholly owned corporation" for purposes of the above provisions of the Act would apply to the transferee of property in the hypothetical situation outlined as follows:

Hypothetical Situation

1.Company A owns 100% of the issued and outstanding share capital of Company B; Company B owns 100% of the issued and outstanding share capital of Company C; and Company C owns 100% of the issued and outstanding share capital of Company D.

2.Company A transfers to Company D capital property in exchange for Company D preferred shares with a redemption and retraction price equal to the adjusted cost base of the property transferred. The fair market value of the property at the time of the transfer is significantly higher than its adjusted cost base.

3.Company A and Company D will jointly elect to have the provisions of subsection 85(1) of the Act apply to the transfer. The agreed amount in respect of the joint election will be the adjusted cost base of the property at the time of the transfer.

Our Comments

We concur with your view that, since the share capital of Company D, immediately after the transfer of property described above, will be owned by Company A and Company C, Company D would be a corporation in which all the issued and outstanding shares of its capital stock belong to the taxpayer (Company A) and a corporation that is a wholly owned corporation of the taxpayer (Company C) within the meaning of "wholly owned corporation" in subsection 85(1.3) of the Act. Therefore, the provisions of paragraph 85(1)(e.2) of the Act would not be applicable to the transfer of property from Company A to Company D.

The comments expressed are not advance income tax rulings and are not considered binding on the Department, in respect of any taxpayer, in accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990.

Yours truly,

for Director
Reorganization and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch