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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Is it possible for a corporation, in a particular situation, to elect not to be a public corporation under subparagraph (c)(i) of the definition of "public corporation" in subsection 89(1) of the Act?
Position: Yes, the expression "insider of a company" should be interpreted according to the meaning given to the term "insider" in the Canada Business Corporations Act.
Reasons: Reference to "insider of a company" in the Canada Corporations Act has been replaced by "insider" in the Canada Business Corporations Act.
XXXXXXXXXX 2001-009029
S. Prud'Homme
October 23, 2001Dear Sir,
Subject: Election to cease being a public corporation
This is in response to your letter of June 18, 2001, received on June 26, 2001, in which you requested our opinion as to whether a corporation ("Pubco"), in a particular situation, could elect not to be a public corporation pursuant to subparagraph (c)(i) of the definition of "public corporation" in subsection 89(1) of the Income Tax Act (the "Act").
It appears to us that the situation described in your letter and summarized below could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R4, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for its opinion. However, we are able to offer the following comments which may be of assistance to you. It should be noted that the facts set out in your letter are relatively summary. Consequently, the general comments offered may not be fully applicable in specific situations.
(1) Particular Situation
You have presented the situation described below (the "Particular Situation") as part of your request for a technical interpretation.
(a) Pubco is a corporation whose classes of shares are listed on a prescribed stock exchange in Canada. Assuming that Pubco is resident in Canada, it is therefore a "public corporation" within the meaning of subsections 248(1) and 89(1).
(b) A corporation ("Acquisitionco") acquires, as owner, all of the issued and outstanding shares of Pubco. Acquisitionco thus becomes the sole shareholder of Pubco.
(c) Following the acquisition by Acquisitionco of all of the issued and outstanding shares of Pubco as owner, the classes of shares of Pubco cease to be listed on a prescribed stock exchange in Canada.
(d) You have assumed that the conditions set out in paragraphs 4800(2)(b) and (c) of the Income Tax Regulations (the "Regulations") are satisfied in respect of Pubco.
(2) Your Analysis of the Particular Situation
In summary, your position is that it would be possible for Pubco to cease to be a public corporation since it would be possible for it to elect, pursuant to subparagraph (c)(i) of the definition of "public corporation" in subsection 89(1) and in accordance with the prescribed conditions, not to be a public corporation in the Particular Situation and that, at the time of such election, Pubco would satisfy the prescribed conditions regarding the number of its shareholders, the distribution of the ownership of its shares and the public trading thereof.
More specifically, you are of the view that the conditions set out in paragraph 4800(2)(a) of the Regulations would be satisfied in the Particular Situation. Your position in this regard is based, among other things, on Technical Interpretation number 9517165 issued by our Directorate on September 8, 1995. In that document, the Directorate indicated that the term "insider" of a corporation should be interpreted according to the meaning given to the term "insider" in the Canada Business Corporations Act (the "CBCA"). You are of the view that, in the Particular Situation, Acquisitionco would be an "insider" of Pubco within the meaning of paragraph (d) of the definition of "insider" set out in subsection 126(1) of the CBCA. You are of the view that the conditions set out in paragraph 4800(2)(a) of the Regulations would therefore be satisfied in the Particular Situation, since Acquisitionco, as an "insider" of Pubco, would hold more than 90% of the issued and outstanding shares of each class of shares of the capital stock of Pubco that was, on a date subsequent to the date on which Pubco last became a public corporation, listed on a prescribed stock exchange in Canada.
(3) Our Comments on the Particular Situation
We generally agree with your position as described above with respect to the Particular Situation. However, we wish to make the following general comments.
A corporation, other than a prescribed labour-sponsored venture capital corporation, that is resident in Canada at that time and that was a public corporation after June 18, 1971 and before that time, was a public corporation for the purposes of the Act. However, such a corporation may cease to be a public corporation if it elects, pursuant to subparagraph (c)(i) of the definition of "public corporation" in subsection 89(1) and in the prescribed manner (subsection 4800(4) of the Regulations), not to be a public corporation and if, at the time of such election, it satisfies the prescribed conditions regarding the number of its shareholders, the distribution of the ownership of its shares and the public trading thereof (subsection 4800(2) of the Regulations). It should be noted that, technically, this election does not allow a target corporation to become a private corporation; rather, this election allows it not to be a public corporation.
On the basis of the facts and assumptions relating to the Particular Situation, we are of the view that Acquisitionco would be an "insider of a company" of Pubco following the acquisition of all of the issued and outstanding shares of Pubco, within the meaning of the definition of "insider of a corporation" set out in subsection 4803(1) of the Regulations. The conditions set out in paragraph 4800(2)(a) of the Regulations would therefore be satisfied. Consequently, and to the extent that the conditions set out in paragraphs 4800(2)(b) and (c) of the Regulations are also satisfied, Pubco could elect, pursuant to subparagraph (c)(i) of the definition of "public corporation" in subsection 89(1) and in accordance with the prescribed terms and conditions (subsection 4800(4) of the Regulations), to no longer be a public corporation.
In closing, please note that this opinion is not an advance ruling and, as stated in paragraph 22 of Information Circular 70-6R4 dated January 29, 2001, it is not binding on the Canada Customs and Revenue Agency with respect to any particular factual situation.
We hope that our comments will be of assistance to you.
Best regards,
Maurice Bisson, CGA
for the Director
Corporate Reorganizations and
Resource Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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