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.
XXX
Re: Foreign Affiliates
This is further to our telephone conversation wherein you sought clarification with respect to comments made in our letter of October 13, 1981.
Re: Goodwill
Subject to our earlier comments, the "gain" referred to in our letter would be the entire gain which falls into exempt earnings, notwithstanding that some of the goodwill may have accrued prior to January 1, 1972.
Re: Capital Gain
As indicated in our conversation, we provided an interpretation which basically agreed with yours on the treatment of capital gains i.e. "the January 1, 1972 values of the assets of FA do not affect this conclusion". (penultimate paragraph of your letter) However, we are unable to draw the general conclusion that if the V-D value of FA's shares to X Company is not less than the pre-acquisition surplus of FA, the distribution of each of the three categories of surplus (including the "taxable surplus" and the "pre-acquisition surplus") would be tax-free to X Company. In our opinion, as a general rule this would not be the case and based on the limited information provided we can only conclude that this was the result in your case.
Our views in respect of transactions by hypothetical taxpayers should be considered only as an expression of a very general interpretation of the law. Whether or not it would apply to a specific transaction by an actual taxpayer may depend on many other factors which may not arise in a hypothetical situation. Further, where an actual taxpayer is involved we are prepared to spend the additional time that may be necessary to give our opinion more relevance to his particular situation and will also advise the appropriate District Office so that they will have our opinion should they review the transaction.
- • Interpretation Bulletin - IT-114
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© Her Majesty the Queen in Right of Canada, 1981
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