19 March 1990 Income Tax Severed Letter AC59592 - Capital Gains Exemption for 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.

19(1) 5-9592

D. Yuen
(613) 957-2111

Mar. 19, 1990

Dear Sirs:

Re: Subsection 110.6(1) of the Income Tax Act (Canada) (the "Act") Qualified Small Business Corporation Share ("QSBC share")

We are writing in response to your letter of February 5, 1990 wherein you requested our opinion on whether certain assets qualified as assets used in an active business for the purposes of the definition of QSBC share contained in subsection 1106.1(1) of the Act in the following fact situation.

Facts

24(1)

You have requested our opinion as to whether or not the special shares and notes described in paragraph 6 above are assets used in an active business for the proposes of determining if the shares of the Dealership Corporation are QSBC shares.

It is your view that the special shares and notes are used in an
active business since they relate to a business obligation to
provide funds they are used a collateral for the purpose of
obtaining goods from 24(1) and the utilization
of the funds by 24(1) enhances the
earning of business income by the corporation.

Comments

It is the Department's view that it is a question of fact, to be determined after a review of all the relevant circumstances, whether certain assets are used in an active business.

Our review of the sample dealership agreement indicates that,

24(1)

However, provided the special shares and notes fulfil a contractual business obligation which is necessary for obtaining and maintaining the franchise, these assets would be considered used in an active business.

The comments expressed are not advance income tax rulings and are not considered binding on the Department, in respect of any taxpayers, 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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