29 March 1996 External T.I. 9605475 - ELECTION TO TRANSFER FORGIVENESS

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:

Eligible transferee election under section 80.04

1)Company controlled by shareholders of debtor + a stranger (1/3)
2)Company controlled by wives of shareholders of debtor

Position:

1)Yes
2)Question of fact, probably No

Reasons:

1)A group of persons by which the debtor is controlled 80(1)
2)No shareholder group appears to control other corporation

									960547
XXXXXXXXXX							C. Tremblay

Attention: XXXXXXXXXX

March 29, 1996

Dear Sirs:

Re: Election under section 80.04 of the Income Tax Act (the "Act")

This is in reply to your letter of February 9, 1996, requesting our opinion on a fact situation involving the election to transfer unapplied portions of the forgiven amount of a debtor to certain corporations pursuant to section 80.04 of the Act.

The situation that is described appears to involve a series of actual proposed transactions. It is not our practice to give written opinions concerning proposed transactions, as indicated in Information Circular 70-6R2. Should you wish to request an advance ruling on these or other transactions which may be proposed, please refer to Information Circular 70-6R2 for the procedure to be followed. Although we are unable to provide any opinion in respect of the specific transactions described in your letter, we have set out some general comments which may be of some assistance.

Subsection 80.04(2) of the Act defines an "eligible transferee" of a debtor at any time as a corporation or partnership that is a "directed person" at that time in respect of the debtor or a taxable corporation or eligible Canadian partnership related to the debtor.

A "directed person" is defined in subsection 80(1) of the Act as a taxable Canadian corporation or eligible Canadian partnership by which the debtor is controlled or a taxable Canadian corporation or an eligible Canadian partnership that is controlled at that time by the debtor, or by the debtor and one or more persons related to the debtor, or by a person or group of persons by which the debtor is controlled.

In our view, for example, where a debtor corporation is owned 50/50 by two unrelated shareholders who as a group control more than 50% of another corporation, the other corporation would be an eligible transferee.

Although it is a question of fact whether there is control by a group of persons related to the group of persons that control the debtor corporation, in our view, where the wives of two unrelated shareholders own another corporation on a 50/50 basis, it would appear that the other corporation is not a "directed person" nor related to the debtor corporation and accordingly, not an eligible transferee.

The forgoing represents our general views with respect to the subject matter of your letter, however, the facts of a particular situation may result in a different conclusion. As indicated, these opinions are not rulings and in accordance with the guidelines set forth in Information Circular 70-6R2 they are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch