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: Capital Gains Exemption
This is in reply to your letter of February 8, 1991 requesting an advance income tax ruling with respect to the possible sale of the shares of XXX
Guidelines under which advance income tax rulings are issued are contained in Information Circular 70-6R2, issued on September 28, 1990. A copy of IT-70-6R2 is enclosed for your information. According to paragraphs 5 and 6 of the Circular, advance rulings are only given on actual, proposed transactions and only when accompanied by all relevant documents (paragraph 15). As it appears you have not yet reached the stage where a specific transaction is proposed, we are unable to acquiesce in your request for such a ruling. We do however provide the following comments with respect to shares of a small business corporation.
Our Comments
The shares of interest to you that would qualify for the capital gains deduction, are "qualified small business corporation shares". A "small business corporation" is, among other things, one in which the bulk of the assets are used in an active business. A business, the principal purpose of which is to derive income from property (including . . . rents . . .) is considered a "specified investment business" unless it employes throughout the year more than five full-time employees. See attached Interpretation Bulletin IT-73R4. The definition of "active business" excludes a specified investment business.
In our view a XXX on a full time basis and that offers no more than normal services such as grounds maintenance and snow removal, would fall into the category of a specified investment business. A gain on the sale of the shares of such a business would not likely qualify for the capital gains deduction.
Your fees in the amount of $250.00 will be returned under separate cover.
We trust our comments will be helpful.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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