21 April 1996 External T.I. 9601635 - DEEMED TAXABLE CANADIAN PROPERTY

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:

Amalgamation of two private corporations to form a new corporation that is a private corporation. Whether the shares of the new corporation are deemed to be taxable Canadian property pursuant to 87(4)?

Position:

Yes

Reasons:

Wording of the demed rule.

		5-960163
XXXXXXXXXX		Robert Gagnon

Attention: XXXXXXXXXX

April 21, 1996

Dear Sirs:

Re: Taxable Canadian Property

This is in reply to your letter of January 3, 1996 wherein you requested our opinion as to whether shares of a public corporation owned by a non-resident corporation ("NR Corp") are taxable Canadian properties as defined in subsection 248(1) of the Income Tax Act ("Act") in the following situation.

Publico is a public corporation as defined in subsection 89(1) of the Act. NR Corp owns 10% of the issued common shares of Publico. The common shares of Publico are listed on a prescribed stock exchange in Canada. Publico became a public corporation in 1990 when its common shares were listed on a prescribed stock exchange in Canada. Publico had previously been a private corporation as defined in subsection 89(1) of the Act since its creation. Publico was formed in 1980 by the amalgamation of two private corporations. On the amalgamation, NR Corp received 10% of the issued common shares of Publico as consideration for its shares of the capital stock of one of the predecessor corporation. Subsection 87(4) of the Act applied with respect to the amalgamation.

Comment

The situation outlined in your letter appears to involve an actual proposed transaction with identifiable taxpayers. As indicated in Information Circular 70-6R2, we do not express opinions on specific transactions otherwise than by way of advance income tax rulings. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, we provide the following general comments which we hope will be of assistance to you.

Subsection 87(4) of the Act provides that where shares owned by a shareholder of a predecessor corporation were taxable Canadian property of the shareholder, the shares of the new corporation shall be deemed to be taxable Canadian property of the shareholder. It is our view that this deemed rule applies where there is an amalgamation of two private corporations to form a new corporation that is a private corporation. The shares of the new corporation that are owned by a non-resident shareholder would, in these circumstances, be deemed to be taxable Canadian property of the shareholder until they are disposed of.

The foregoing opinion is not a ruling and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, is not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

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