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:
Does a trust which purchases and holds all of the issued shares of a corporation that carries on an active business meet the requirement contained in paragraph 132(6)(b)(i) - "its only undertaking was the investing of its funds in property (other than real property)".
Position TAKEN:
Yes.
Reasons FOR POSITION TAKEN:
The opinion request describes the trust's only activity as the purchasing and holding of all the issued shares of a corporation. Such an activity falls within the ordinary meaning of the term "investing". In file #962186 we agreed that a corporation whose only investment was in the common shares of its wholly-owned subsidiary would satisfy the requirement that the corporation's "only undertaking would be the investing of its funds in property" in paragraph 131(8)(b). Also, in file #941348, we ruled that a public foundation was not considered to be carrying on business by reason of its 100% ownership of the shares of a taxable corporation. Therein, it was concluded that merely holding shares in a corporation as an investment, generally, does not amount to carrying on business. In the limited circumstances described such a trust would meet the requirements of subparagraph 132(6)(b)(i). This conclusion is consistent with the positions taken in 962186 & 941348.
5-970017
XXXXXXXXXX G.W. Keable
(613) 957-2046
Attention: XXXXXXXXXX
June 16, 1997
Dear Sirs:
Re: Mutual Fund Trusts
This is in reply to your letter of January 2, 1997, wherein you requested a technical interpretation concerning paragraph 132(6)(b) of the Income Tax Act (the "Act"). We apologize for the delay in responding.
Specifically, you have asked whether the requirement in subparagraph 132(6)(b)(i) of the Act that the trust's only undertaking be the investing of its funds in property (other than real property) is met in circumstances where a trust indenture provides that the sole undertaking of the trust will be to purchase and hold all of the issued shares of a corporation which carries on an active business in Canada. It is your view that such a trust would meet this requirement. Our comments are as follows.
The term "investing" encompasses the purchase of properties, including shares of a corporation, in order to derive income from such properties. However, whether or not the only undertaking of a trust is the investing of its funds is a question of fact to be determined by reviewing the purpose, scope, number, and degree of activities of the trust at a particular time. Holding shares in a corporation as an investment, generally, will not result in the trust being considered to be carrying on business. Also, the fact that a trust's investment in a particular corporation may be substantial does not, in and by itself, make the corporation's business that of the trust. In these cases, other factors, including whether or not the directors of the corporation can be viewed as agents of the trustee or whether there are agreements in place requiring the directors to follow the instructions of the trustee, are relevant and must be considered in making such a determination.
In the limited circumstances referred to in your letter where the only undertaking of the trust will be to purchase and hold all of the issued shares of a corporation, we share your view that such a trust would generally meet the requirement in subparagraph 132(6)(b)(i) of the Act.
The above comments represent our general views on the subject matter of your letter. However, as indicated in paragraph 22 of Information Circular 70-6R3, a technical interpretation is not a ruling and is not binding on Revenue Canada.
We trust that our comments will be of assistance to you.
Yours truly,
for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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