Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: On May 15, 20-A, Company A, a CCPC, acquired all of the issued and outstanding shares of the capital stock of Company B, a public corporation, causing an acquisition of control of the latter. Consequently, Company B had a deemed year-end on May 14, 20-A by virtue of subsections 256(9) and 249(4) (no election under subsection 256(9) was done). Company B decided to establish the end of its fiscal period on May 14 of each year. On June 1, 20-A, Company B elected not to be a public corporation under subparagraph (c)(i) of the definition of "Public Corporation" in subsection 89(1). Company B became a CCPC and had a deemed year-end on May 31, 20-A by virtue of subsection 249(3.1). Company B elected not to be a CPCC by virtue of subsection 89(11) by filing the prescribed form on November 14, 20-B. Whether, in the particular situation, Company B would have a deemed year-end on May 31, 20-A by virtue of subsection 249(3.1).
Position: Yes.
Raisons: Since Company B elected not to be a public corporation under subparagraph (c)(i) of the definition of "Public Corporation" in subsection 89(1) as of June 1, 20-A, Company B became a CCPC on June 1, 20-A. Thus, by virtue of subsection 249(3.1), Company B's taxation year would be deemed to end immediately before June 1, 20-A, i.e. on May 31, 20-A, notwithstanding the subsection 89(11) election filed by Corporation B on November 14, 20-B. In order to avoid a May 31, 20-A year-end, Company B had to file the election not to be a CCPC under subsection 89(11) on or before the filing deadline of this particular year which would be November 30, 20-A. Moreover, a subsection 89(11) election cannot be late-filed under subsection 220(3.2) since that election is not prescribed for the purpose of section 600 of the Income Tax Regulations.
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2010-037725
J. Lafrenière
(613) 941-2956
October 20, 2010
Subject: Request for Technical Interpretation - Subsections 249(3.1) and 89(11)
Dear Sir,
This is in response to your letter of August 6, 2010, in which you asked us for clarification regarding the application of subsections 249(3.1) and 89(11) of the Income Tax Act (the "Act") in the context of a particular situation.
Unless otherwise indicated, any statutory reference herein is to a provision of the Act.
It appears to us that the situation described in your letter and hereinafter summarized could constitute an actual situation involving taxpayers. As stated in Information Circular 70-6R5, 2002, it is not the practice of the Directorate to issue a written opinion regarding proposed transactions otherwise than through advance rulings. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we can offer the following general comments that we hope may be helpful to you. It should be noted that the application of one or more provisions of the Act generally requires the analysis of all facts relating to a particular situation. Accordingly, and in light of the fact that your letter only very briefly describes a hypothetical particular situation, our comments below may not be fully applicable in a particular situation.
1) The Particular Situation
You have presented the situation described below (the "Particular Situation") as part of your request for a technical interpretation:
a) On May 15, 20-A, Corporation A, a Canadian-controlled private corporation (a "CCPC"), acquired all of the shares of the capital stock of Corporation B, a public corporation.
b) As a result of this acquisition of control, Corporation B had a deemed taxation year end on May 14, 20-A by virtue of subsections 256(9) and 249(4) (no election under subsection 256(9) having been made).
c) Corporation B then adopted May 14 as its taxation year end for the purposes of the Act, with the result that its next taxation year is expected to end on May 14, 20-B.
d) However, Corporation B made the election under subparagraph (c)(i) of the definition of "public corporation" in subsection 89(1) to no longer be a public corporation from June 1, 20-A onwards.
e) Corporation B became a CCPC following its election to no longer be a public corporation. As a result, Corporation B had a deemed taxation year end on May 31, 20-A, by virtue of subsection 249(3.1), by reason of becoming a CCPC on June 1, 20-A.
f) Corporation B made an election to not be a CCPC pursuant to subsection 89(11) by filing the election on or before the applicable filing due date. In the Particular Situation, the election was made on November 14, 20-B for its taxation year beginning on May 15, 20-A.
g) You concluded that in these circumstances, Corporation B would never have become a CCPC for the purposes of paragraph (d) of the definition of CCPC in subsection 125(7), since it made the election, for its taxation year that commenced on May 15, 20-A, not to be a CCPC and, consequently, did not have a deemed taxation year end on May 31, 20-A by virtue of subsection 249(3.1).
2) Your Questions respecting the Particular Situation
a) You are asking us to confirm that the making by a corporation of an election to no longer be a public corporation pursuant to subparagraph (c)(i) of the definition of "public corporation" in subsection 89(11) and thus become a CCPC can avoid the deemed year-end that would normally occur under subsection 249(3.1), if it elected not to be a CCPC under subsection 89(11) for the taxation year that includes the change of status.
b) Since Corporation B would not be deemed to have a year end because of the election to not be a CCPC, you asked us to confirm that it would be appropriate to make the election under subsection 89(11) no later than the filing due date based on its deemed year end following its acquisition of control, namely November 14, 20-B.
3) Our Comments respecting the Particular Situation
As it appears from the particular situation, Corporation B made the election to no longer be a public corporation pursuant to subparagraph (c)(i) of the definition of "public corporation" in subsection 89(1).
However, once the election to no longer be a public corporation was made and since all of the shares of the capital stock of Corporation B were held by Corporation A, a CCPC, it appears that Corporation B became a CCPC on June 1, 20-A, as it met the conditions in the definition of CCPC in subsection 125(7).
Subsection 249(3.1) provides that if at any time a corporation becomes or ceases to be a Canadian-controlled private corporation, otherwise than because of an acquisition of control to which subsection 249(4) would, in the absence of subsection 249(3.1), apply:
(a) the corporation’s taxation year that would, in the absence of subsection 249(3.1), include that time is deemed to end immediately before that time;
(b) a new taxation year of the corporation is deemed to begin at that time;
(c) notwithstanding subsections 249(1) to (3), the corporation’s taxation year that would, in the absence of subsection 249(3.1), have been its last taxation year that ended before that time is deemed instead to end immediately before that time if
(i) were this Act read without reference to this paragraph, that taxation year would, otherwise than because of paragraph 128(1)(d), section 128.1 and paragraphs 142.6(1)(a) or 149(10)(a), have ended within the 7-day period that ended immediately before that time,
(ii) within that 7-day period no person or group of persons acquired control of the corporation, and the corporation did not become or cease to be a Canadian-controlled private corporation, and
(iii) the corporation elects, in its return of income under Part I for that taxation year to have this paragraph apply; and
(d) for the purpose of determining the corporation’s fiscal period after that time, the corporation is deemed not to have established a fiscal period before that time.
In the Particular Situation, despite the election under subsection 89(11) filed on November 14, 20-B, Corporation B would be deemed to have a taxation year (the “year in question") commencing on the day on which Corporation A acquired control of Corporation B, i.e., on May 15, 20-A and ending May 31, 20-A, being immediately before the time when the election to no longer be a public corporation was applicable.
At that point, Corporation B became obligated under clause 150(1)(a)(i)(A) to file a tax return within six months after the end of the year in question, namely, no later than 30 November 20-A.
If Corporation B did not make an election under subsection 89(11) to not be a CCPC until November 14, 20-B, as in the Particular Situation, we are of the view that the exception in paragraph (d) of the definition of CCPC in subsection 125(7) could only apply to Corporation B for the taxation year beginning on June 1, 20-A and ending on May 14, 20-B, and thereafter.
It also appears to us that, in the Particular Situation, if Corporation B had made the election under subsection 89(11) at any time during the period beginning on May 15 and ending on November 30, 20-A, rather than on November 14, 20-B, subsection 249(3.1) would not apply to cause a deemed taxation year end on May 31, 20-A, because of the application of the exception in paragraph (d) of the definition of CCPC in subsection 125(7) during that period.
In closing, we remind you that under subsection 220(3.2), the Minister may, among other things, extend the time for making certain elections. However, since an election made under subsection 89(11) is not an election provided for section 600 of the Income Tax Regulations, subsection 220(3.2) cannot apply to a such an election.We hope that our comment will be of assistance.
Best regards,
Maurice Bisson, CGA
Manager
Corporate Reorganizations and
Resource Industry Section
Corporate Reorganizations and
Resource Industry Division
Income Tax Rulings Directorate
Legislative Policy and
Regulatory Affairs Branch
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