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: Whether subsection 186(5) applies where a wholly-owned subsidiary with an RDTOH balance is wound-up into its parent under subsection 88(1).
Position: Yes it can apply.
Reasons: The law - A specific reference to paragraph 88(1)(e.2) in subsection 186(5) is not required since paragraph 87(2)(aa) applies, as modified by paragraph 88(1)(e.2).
XXXXXXXXXX 2001-007392
December 18, 2001
Dear XXXXXXXXXX:
Re: Subsection 186(5) and paragraph 88(1)(e.2) of the Income Tax Act (the "Act")
We are writing in reply to your letter of March 7, 2001 wherein you requested our opinion regarding the application of subsection 186(5) of the Act (all further statutory references in this letter are to the Act) in a situation where a subsidiary corporation is wound-up into its parent corporation pursuant to subsection 88(1).
The situation in your letter may be briefly described as follows:
A wholly-owned subsidiary ("S") of a public corporation ("P") has a balance of "refundable dividend tax on hand" ("RDTOH") within the meaning assigned by subsection 129(3) as a result of S having paid Part IV tax. Each of S and P is a "subject corporation" as that term is defined in subsection 186(3). S is to be wound-up into P under subsection 88(1).
You indicate that pursuant to paragraph 88(1)(e.2), paragraph 87(2)(aa) should apply to the winding-up of S with the effect that any RDTOH balance in S immediately before it is wound-up should flow through to P. However, you also indicate that since S and P are not private corporations the flow through of S's RDTOH balance to P will only occur if subsection 186(5) applies to deem each of S and P to be a private corporation for the purposes of paragraph 87(2)(aa) and section 129.
Your question is whether the reference in subsection 186(5) to paragraph 87(2)(aa) include a reference to that paragraph as modified by paragraph 88(1)(e.2).
Your request appears to relate to a proposed transaction or a completed transaction. 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 70-6R4 ("IC-70-6R4") dated January 29, 2001. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. We can, however, provide the following general comments.
While subsection 186(5) does not specifically refer to paragraph 88(1)(e.2) it is our view that such reference is not necessary. Therefore, where a subsidiary corporation is wound-up into its parent subsection 186(5) will cause paragraph 87(2)(aa) (as modified by paragraph 88(1)(e.2)) to be applicable to the winding-up provided each of the subsidiary and the parent are subject corporations at the relevant times required for these purposes.
Our comments are provided in accordance with the practice outlined in paragraph 22 of IC-70-6R4.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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