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.
Dear Sirs:
Re: Interaction of subsections 186(2) & (4)
This is in reply to your letter of August 29, 1991, wherein you request our views regarding the reference to subsection 186(4) of the Income Tax Act (the "Act") within the definition of "small business corporation" in subsection 248(1) of the Act.
You note that the definition of "small business corporation" in subsection 248(1) of the Act refers to a corporation that is connected with another corporation "within the meaning of subsection 186(4)" of the Act. Your question is whether subsection 186(2) of the Act, which defines the circumstances in which one corporation is "controlled" by another corporation for the purposes of Part IV of the Act, is applicable in determining, for the purposes of the definition of "small business corporation" in subsection 248(1) of the Act, whether one corporation is connected with another corporation within the meaning of subsection 186(4) of the Act.
It is our view that, in determining whether one corporation is connected with another corporation within the meaning of subsection 186(4) of the Act for the purposes of the definition referred to above, subsection 186(2) of the Act is applicable.
In the hypothetical situation that you describe (wherein two corporations are controlled by the same person but do not hold shares in one another and therefore neither corporation is connected with the other within the meaning of paragraph 186(4)(b) of the Act), each such corporation would be connected with the other corporation, within the meaning of paragraph 186(4)(a) of the Act, for the purposes of the definition referred to above by virtue of subsection 186(2) of the Act. Accordingly in the above situation a loan from one corporation to the other corporation could be considered a qualifying asset for purposes of the definition.
The above comments are of a general nature and do not take into account considerations that might arise in the context of a specific transaction. In accordance with paragraph 21 of Information Circular 70-6R2, the comments expressed herein do not constitute advance income tax rulings and are not binding on the Department.
We trust our comments will be of assistance to you.
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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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