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: none
Position:
Reasons:
xxxxxxxxxx 5-992242
D. Yuen
Attention: xxxxxxxxxx
October 15, 1999
Dear Sirs:
Re: Subsection 69(11) of the Income Tax Act1
We are writing in response to your letter of August 6, 1999 wherein you requested a technical interpretation in respect of the above subsection.
1All statutory references contained in this letter are to the Income Tax Act, R.S.C. 1985 (5th Supp.), C. 1, as amended hereof, except as otherwise indicated.
Situation
1. Mr. A. owns 100% of the voting shares of Holdco.
2. Holdco owns 98% of the voting shares of Opco.
3. Mr. B. owns 1% of the voting shares of Opco.
4. Mr. A. owns 1% of the voting shares of Opco.
5. There are no other voting shares of either Opco or Holdco.
6. Mr. A. and Mr. B. are not related, or affiliated with one another.
Your Ouestion
In the context of subsection 69(11), would Mr. A. and Opco be deemed to be affiliated?
"Pursuant to subparagraph 251.1(1)(b)(ii), Mr. A. is affiliated with Holdco, and Holdco is affiliated with Opco. Notwithstanding the fact that subsection 69(11) makes reference to subsection 251.1(3) as having no application to the definition of control for the purposes of determining whether two entities are affiliates under subsection 69(11), we believe that Mr. A. and Opco are indeed affiliated by virtue of the "de jure" control test (and not the de facto test as described under subsection 251.1(3)). Therefore, Mr. A. controls Opco."
Paragraph 33 of Interpretation Bulletin IT-64R3 states the following: "It is possible for a person to have de jure control over a corporation without ownership of any of its shares, provided that person controls one or more other corporations which, singly or between them, have voting control of the first-mentioned corporation." As this is the case in this situation, Mr. A. would be considered to control Opco even without reference to the definition "controlled" in subsection 251.1(3) and, therefore, it is our view that Mr. A. and Opco would be affiliated with each other pursuant to subparagraph
These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular IC-70-6R3 dated December 30, 1996 issued by Revenue Canada and are not considered binding on Revenue Canada.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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