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:
Whether a for-profit corporation which will be owned equally by three municipalities will qualify for exemption by virtue of paragraph 149(1)(d) of the Act.
Position TAKEN:
Yes.
Reasons FOR POSITION TAKEN:
Paragraph 5 of IT-347R2 refers to an ownership test which could include a combination of qualifying entities. This interpretation may apply to one or more municipalities.
L. Barrows
XXXXXXXXXX 960059
Attention: XXXXXXXXXX
February 21, 1996
Dear XXXXXXXXXX:
Re: Paragraph 149(1)(d) of the Income Tax Act (the "Act")
This is in reply to your letter of December 19, 1995 in which you requested an interpretation of the above-referenced paragraph as it relates to the exemption of a corporation under a proposed ownership arrangement involving three municipalities.
Under the proposal, the three municipalities would incorporate a company under the Company Act of British Columbia. Each of the municipalities will own one common share entitling each municipality to one vote. In addition, for the purposes of profit distribution in the form of dividends, each of the municipalities will own preferred shares in unequal portions. The three municipalities will be the sole shareholders and no one will have a right under contract, in equity or otherwise immediately or in the future either absolutely or contingently to acquire shares of the company.
As outlined in your letter, the situation described therein relates to a specific, proposed transaction. Consequently, we advise that written confirmation of the tax implications inherent in a particular fact situation is only given by this Directorate in response to a request for an advance income tax ruling and submitted in the manner set out in Information Circular 70-6R2. However, in response to your request, we can provide the following general comments which are not binding on the Department.
Paragraph 149(1)(d) of the Income Tax Act (the "Act") exempts from tax any corporation, commission or association that is owned not less than 90% by the federal or provincial government or a Canadian municipality. It also provides for the exemption from income tax of any corporation which is a wholly-owned subsidiary of such a corporation, commission or association.
As outlined in your letter, subsection 33(2) of the Interpretation Act provides that words in the singular include the plural and that words in the plural include the singular. Furthermore, subsection 3(1) of that Act provides that unless a contrary intention appears, its terms apply to every statute enacted by the Parliament of Canada.
In our view, the everyday use of the word "municipality" in paragraph 149(1)(d) of the Act is interchangeable with its plural "municipalities". In this regard, paragraph 5 of Interpretation Bulletin IT-347R2 refers to an ownership test which could include a combination of qualifying entities. As a result, we are of the view that this interpretation may apply to ownership by one or more municipalities.
It is also acknowledged that the corporation will have no other shareholders except the three municipalities. Where, however, the 90% share ownership test is met but the corporation, commission or association has the right to redeem any of its shares, it could be considered that, for purposes of subparagraph 149(1)(d)(i) of the Act, "a person other than Her Majesty in the right of Canada or a province or Canadian municipality had, during the period, a right under a contract, in equity or otherwise either immediately or in the future and either absolutely or contingently, to, or to acquire, shares or capital of that corporation, commission or association". This right would, as a result, disqualify the corporation, commission or association for exempt status under paragraph 149(1)(d).
We trust these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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