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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether a capital gains dividend, received pursuant to subsections 131(1) and (8) by a shareholder of "prescribed labour-sponsored venture capital corporation", can be eligible for the "qualified small business corporation share" capital gains deduction, under subsection 110.6(2.1), in the shareholder's hands.
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
As a consequence of the elimination of the $100,000 capital gains deduction in 1994, subsection 131(1) was amended, effective for capital gains dividends paid after February 22, 1994, simply to treat a capital gains dividend paid by a corporation, pursuant to that provision, as a capital gain in the hands of its shareholders. Accordingly, such a capital gain is no longer eligible for the capital gains deduction. The wording of paragraph 131(1)(b) does not provide that the capital gain referred to therein can qualify for the capital gains deduction provided under subsection 110.6(2.1), in respect of a disposition by an individual of capital property that is a qualified small business corporation share.
XXXXXXXXXX 1999-000823
M. Azzi
Attention: XXXXXXXXXX
February 9, 2000
Dear Sirs:
Re: Sections 110.6 and 131 of the Income Tax Act (the "Act")
This is in reply to your letter of November 18, 1999, wherein you requested our views on whether a capital gains dividend, received pursuant to subsections 131(1) and (8) of the Act by a shareholder of "prescribed labour-sponsored venture capital corporation", can be eligible for the "qualified small business corporation share" capital gains deduction, under subsection 110.6(2.1) of the Act, in the shareholder's hands.
Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments.
As you know, as a consequence of the elimination of the $100,000 capital gains deduction in 1994, subsection 131(1) of the Act was amended, effective for capital gains dividends paid after February 22, 1994, simply to treat a capital gains dividend paid by a corporation, pursuant to that provision, as a capital gain in the hands of its shareholders. Accordingly, such a capital gain is no longer eligible for the capital gains deduction. In our view, the wording of paragraph 131(1)(b) of the Act does not provide that the capital gain referred to therein can qualify for the capital gains deduction provided under subsection 110.6(2.1) of Act, in respect of a disposition by an individual of capital property that is a qualified small business corporation share.
Please note that the role of the Canada Customs and Revenue Agency is to administer and enforce the Act as passed by Parliament. The concerns raised in your letter and our telephone conversation (Wilson/XXXXXXXXXX) relate to tax policy, which is the responsibility of the Department of Finance. Should you wish to pursue these tax policy concerns further, you may contact the Tax Policy Branch of the Department of Finance by writing to L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario K1A 0G5.
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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