27 February 1990 Income Tax Severed Letter AC59462 - Capital Gains Exemption - Qualified Small Business Corporation Share

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.

• 5- 9462

19(1) D. Yuen
(613) 957-2111

February 27, 1990

Dear Sirs:

Re: Subsection 110.6(1) of the
Income Tax Act (Canada) (the "Act")

We are writing in response to your letter of January 19, 1990 wherein you requested our comments on the following hypothetical situation.

• 1. Opco is a small business corporation as defined in subsection 248(1) of the Act. It has one issued and outstanding common share.
• 2. Mr. A owns the one common share of Opco. The share is a qualified small business corporation ("QSBC") share as defined in subsection 110.6(1) of the Act.
• 3. Mr. A wishes to sell 50% of Opco to Mr. B, an arm's length party. Mr. B does not wish to acquire a fraction of a share.
• 4. It is proposed that Opco perform a stock split of 100 to 1.

You have asked whether the 100 "new" common shares that will replace the 1 "old" common share would still qualify as QSBC shares.

It is our view that a stock split which does not increase the appropriate stated capital account is not considered to result in a share issue. Accordingly, a stock split will not, in and by itself, cause the "new" common shares to cease to be QSBC shares.

The comments expressed are not advance income tax rulings and are not considered binding on the Department, in respect of any taxpayer, in accordance with paragraph 24 of Information Circular 70-6R dated December 18, 1978.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

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