30 October 1995 External T.I. 9528185 - INCREASE IN INTEREST IN A CORPORATION

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:

increase in interest in a corporation

Position:

an interest in a corporation includes an indirect interest

Reasons:

an interest in a corporation is not restricted to the ownership of shares; a person who owns participating shares of a parent corporation has an interest in each subsidiary corporation

						5-952818
XXXXXXXXXX 	T. Harris

Attention: XXXXXXXXXX

October 31, 2018

Dear Sirs:

Re: XXXXXXXXXX
Proposed Reorganization

This is in response to your letter of October 25, 1995 wherein you requested confirmation that the Department would be prepared to provide a ruling that, by virtue of paragraph 55(3)(a), subsection 55(2) of the Income Tax Act (the "Act") would not be applicable to any deemed dividends which will arise as a result of the share redemptions which will occur in the course of a proposed reorganization involving XXXXXXXXXX.

As stated in Information Circular 70-6R2 dated September 28, 1990, confirmation of the tax consequences relating to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. Nevertheless, we can offer the following general comments which may be of assistance to you.

It is our view that the term "interest" for the purposes of subparagraph 55(3)(a)(ii) of the Act includes the indirect economic interest that a shareholder in a parent corporation has in a subsidiary of the parent. In the situation where shareholders of a corporation who deal at arm's length with the corporation (hereinafter referred to as "Parentco") acquire mirror shares of a wholly-owned subsidiary of Parentco (hereinafter referred to as "Subco") in exchange for their shares of Parentco, it is our view that the same interest in Subco (considered as a percentage or proportion of the shares of Subco) that will be acquired by them directly is already held by them indirectly through their ownership of the shares of Parentco. In addition, a so-called "somersault" transaction is one situation in which, for the purposes of subparagraph 55(3)(a)(ii), we will generally consider an increase in interest in terms of a percentage interest rather than in terms of a dollar amount. This is an exception to the general statement made by John R. Robertson in the 1981 Conference Report at p. 108 that "... the Department will generally review the transactions(s) or event(s) in terms of the absolute dollar increase in the interest in any corporation."

The foregoing comments are based on the presumption that there is no increase in any arm's length shareholder's economic interest in the group determined on a consolidated basis. In other words, the consolidated balance sheet for Subco after the reorganization will reflect the same underlying assets and liabilities as the consolidated balance sheet for Parentco prior to the reorganization.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

Yours truly,

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