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.
Dear Sirs:
This is in reply to your letter, dated March 15, 1988, in which you requested written confirmation that for purposes of subsection 55(2) of the Income Tax Act ("Act") "income earned or realized by any corporation" includes undistributed income earned or realized by a 50% owned subsidiary corporation.
In our view, the word "any" in the phrase "income earned or realized by any corporation" in subsection 55(2) of the Act permits a parent corporation to include therein the incomes (or losses) earned or realized by corporations in which it has a significant influence to the extent such income is attributable to the gain inherent in the shares of the parent. The term "significant influence" has the same meaning as given in Section 3050 of the Canadian Institute of Chartered Accountants Handbook, namely ownership, directly or indirectly, of 20% or more of the shares of the corporation and the ability to influence operating and financial decisions even though the parent does not legally control the corporation.
Accordingly, provided that the income earned or realized by a 50% subsidiary during the relevant period is attributable to the gain inherent in the shares of the parent, generally it is our view that such income need not be actually paid by way of dividend to the parent corporation in order for it to be included in the calculation of the income earned or realized in respect of the parent.
As a point of interest you should note that the calcualtion of "income earned or realized by any corporation" for purposes of subsection 55(2) of the Act is to be done prior to a transaction or event or a series of transactions or events taking into account subsection 248(10) of the Act.
While we hope that our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
Canada - U.S. Tax Conventions
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1988
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1988
Email this Content