24 October 1995 External T.I. 9523905 - DESIGNATION OF INCOME TO PARENT OR SUBSIDIARY

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:

Designation of income by parent or subsidiary under 66.7(10)(g) when COGPE renounced to parent of JEC before control of the parent was acquired.

Position TAKEN:

No designation permitted, there was no parent/subsidiary relationship between the transferor and transferee immediately before control of the transferee changed, and because when the parent was deemed to incur COGPE the new parent was not a parent or subsidiary corporation.

Reasons FOR POSITION TAKEN:

66. 7(10)(g) requirement is not met.

		 5-952390
XXXXXXXXXX                  	 B. Rankin
(613) 957-8974

Attention: XXXXXXXXXX

October 24, 1995

Dear Sirs:

Re: Designation of Income - paragraph 66.7(10)(g) of the Income Tax Act (the "Act")

This is in reply to your letter of February 28, 1995, to the Calgary Tax Services Office which was forwarded to us for reply. You requested our views concerning paragraph 66.7(10)(g) of the Act and the designation of income by a parent or subsidiary corporation.

We note from your description of the facts that the matter in all probability relates to a completed transaction. When a requested interpretation relates to a completed transaction, it should be referred to the taxpayer's local tax services office for their consideration. However, we can provide you with the following general comments which may be of assistance to you. Our comments, however, should not be construed as confirming the income tax effects of your particular situation.

Our Comments

In general terms, under paragraph 66.7(10)(g) of the Act, a parent or subsidiary (the "transferor") may designate income to a corporation (the "transferee") that was a subsidiary or parent immediately before the time control of the transferee changed.

Paragraph 66.7(10)(g) of the Act also requires that the income be designated in respect of Canadian exploration expense, Canadian development expense, and Canadian oil and gas property expense (the "resource expenses") that the transferee incurred at a time when the transferor was a parent or subsidiary in respect of the transferee. Thus, where the resource expenses were incurred or deemed to be incurred before there was a parent or subsidiary relationship between the transferor and the transferee, paragraph 66.7(10)(g) of the Act would not permit the transferor to designate income in respect of the above-noted resource expenses.

The foregoing comments represent our general views on the subject matter. As indicated in paragraph 21 of Information Circular 70-6R2, the above comments do not constitute an advance income tax ruling and accordingly are not binding on Revenue Canada.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch