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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues : Application of paragraphs 88(1)(d.2) and 88(1)(d.3)
Position: Question of fact. General comments only.
Reasons: We need more information
2002-011870
XXXXXXXXXX 2002-011522
2002-011871
May 5, 2003
Dear XXXXXXXXXX:
Re: Paragraphs 88(1)(d.2) and (d.3)
This is in response to your three letters dated December 10, 2001, wherein you requested our opinion on the application of the above noted provisions of the Income Tax Act (the "Act").
In each of your letters, you described several variations to a somewhat common set of facts involving an acquisition of shares of a corporation by an estate of a deceased individual. In each of your letters, the estate and/or certain non-arm's-length persons, propose to undertake certain transactions for the purposes of obtaining a "bump" under paragraphs 88(1)(c) and (d).
There are a number of income tax issues raised in your letters, including those relating to a change in the voting rights of shares upon the death of an individual shareholder, that we are unable to address in the context of a technical interpretation.
Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 (IC-70-6R5) dated May 17, 2002. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's ("CCRA") views must be made to your local Tax Services Office. If you decide to make any such request, all the relevant facts and other pertinent information, including a copy of the deceased taxpayer's will, would need to be provided to the CCRA.
Notwithstanding the above, we are prepared to provide the following comments concerning the general application of paragraphs 88(1)(d.2) and (d.3).
Firstly, where shares of a particular corporation (the "subsidiary") have been transferred back and forth between persons or a group of persons who do not deal at arm's length with each other and, as a result of such transfers, control of the subsidiary is ultimately acquired by the parent corporation from such non-arm's-length person or group of persons, paragraph 88(1)(d.2) would apply to deem the parent corporation to have last acquired control of the subsidiary, for the purposes of paragraphs 88(1)(c) and (d), at the earliest time that any non-arm's-length person or group of persons would have acquired control the subsidiary within the modified meaning of control in subsection 186(2).
Secondly, we agree that because the definition of "acquirer" in paragraph 88(1)(d.2) includes a person as well as a group of persons who acquire control of a corporation from a non-arm's-length "vendor", the reference to an acquirer in paragraph 88(1)(d.3) will include a group of persons who are beneficiaries of a deceased individual's estate where such beneficiaries have acquired control of the corporation as a consequence of the particular individual's death.
Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R5.
Yours truly,
David Palamar
Section Manager
For Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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