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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
1. Would a corporation be a qualified corporation where a non-resident who is a Canadian citizen controls it?
Position:
1. Involves a question of fact.
Reasons:
1. Reading of the relevant legislation.
XXXXXXXXXX 2002-015404
Allan Nelson, C.M.A.
(613) 443-7253
October 8, 2002
Dear XXXXXXXXXX:
Re: Technical Opinion Request
We are writing in reply to your electronic mail message to us dated July 26, 2002, wherein you have asked us whether a particular taxable Canadian corporation ("Canco") owned 100% by Mr. X (a non-resident who is a Canadian citizen) would meet the definition of "qualified corporation" in subsection 125.4(1) of the Income Tax Act (Canada) (the "Act").
Specifically, you enquire whether draft paragraph 1106(2)(a) of the Income Tax Regulations (the "Regulations") would prevent Canco from qualifying as a "prescribed taxable Canadian corporation".
As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments, which may be of some assistance to you.
The definition of "qualified corporation" in subsection 125.4(1) of the Act means a "...corporation that is throughout the year a prescribed taxable Canadian corporation...".
"Prescribed taxable Canadian corporation" is defined in draft subsection 1106(2) of the Regulations to mean "...a taxable Canadian corporation that is a Canadian, other than a corporation that is (a) controlled directly or indirectly in any manner whatever by one or more persons all or part of whose taxable income is exempt form tax under Part I of the Act...".
To respond to your query with the limited information provided, we have made the following assumptions:
? Mr. X has always been a Canadian citizen;
? Canco has always been a "taxable Canadian corporation" that is a "Canadian" within the respective meanings of those terms in subsection 89(1) of the Act and draft subsection 1106(1) of the Regulations;
? du jure and de facto control of Canco is solely with Mr. X and there are no agreements or arrangements in place that would alter this fact or that would give someone other than Mr. X the legal or beneficial ownership of the shares of Canco or the ability to acquire those shares;
? the other requirements have been met in order for Canco to be a qualified corporation, subject to answering the question of whether Canco is controlled directly or indirectly in any manner whatever by one or more persons all or part of whose taxable income is exempt from tax under Part I of the Act. If Canco is so controlled, it would not be a prescribed taxable Canadian corporation and would not be a qualified corporation; and
? Mr. X would be subject to tax in Canada (Part I or Part XIII) on amounts received from Canco (e.g., salary from employment in Canada, dividends, management fees).
Based on all of the above, it is our opinion that draft paragraph 1106(2)(a) of the Regulations would not exclude Canco from being a prescribed taxable Canadian corporation and a qualified corporation, simply because Mr. X is a non-resident (who is also a Canadian citizen).
Ultimately, this matter involves a question of fact that must be addressed before conclusive answers can be given. Our response might differ once we have had opportunity to review all of the relevant facts in a particular scenario.
In accordance with paragraph 22 of Information Circular 70-6R5, the above comments are only an expression of opinion, and as such should not be construed as an advance income tax ruling, nor are they binding on the Canada Customs and Revenue Agency.
We hope the above will be of assistance to you.
Yours truly,
Milled Azzi, C.A.
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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