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:
Can a capital gain from one corporation be "transferred" to another corporation such that the gain will be treated as being ancillary to the second corporation's business (so as to allow it to claim full CCA on its rental properties?
Position:
Strictly a question of fact.
Reasons:
Fact driven reply required.
XXXXXXXXXX 5-962740
Attention: XXXXXXXXXX
September 30, 1996
Dear Sirs:
Re: Subsection 1100(12) of the Income Tax Regulations ("Regulations")
This is in reply to your letter of July 15, 1996, in which you requested our comments with respect to the application of subsection 1100(12) of the Regulations to a particular situation.
In your letter you described a situation where Mr "X" owns two corporations, "A" and "B", with A having a principal business of renting real property and B holding shares of a public corporation. You then provided your analysis that if the two corporations were merged into a new corporation "C", any taxable capital gains derived from the disposition of the shares now held by B could be considered to be income from other than a rental business such that C would not qualify for the exemption from the provisions of subsection 1100(11) of the Regulations provided by subsection 1100(12). You then asked us to confirm that the capital gain in this situation could be ignored in determining what C's principal business would be since the gain on any disposal of the share holdings would arise from C's investment activities.
The hypothetical facts provided appear to reflect a factual situation and, as such, we cannot provide confirmation of the tax treatment that may be applicable except in the context of an advance income tax ruling. You should also note that your questions require a determination of whether the businesses in question meet certain criteria. In general, this would be a factual determination and the Department can not normally provide rulings on such determinations of fact.
In our opinion, whether the shares now held by B will be held as investments of C and ancillary to its business of renting real property, or as part of a separate business is a question of fact. Furthermore, it will be a question of fact which business, if any, is the principal business of C if it is determined that more than one business is being conducted by C. In this latter regard, you have noted the Department's comments in Interpretation Bulletin IT-371. Additional comments may also be found in IT-290 and IT-73R4.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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