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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
5-951168
XXXXXXXXXX J. Teixeira
(613) 957-8953
Attention: XXXXXXXXXX
June 23, 1995
Dear Sirs:
Re: Types of Property
This is in reply to your letter of April 21, 1995, wherein you requested our opinion on determining the "types of property" for purposes of a "distribution" as defined in subsection 55(1) of the Income Tax Act. In particular, you have requested our confirmation that the shares of two wholly-owned subsidiaries of a distributing corporation will not be subjected to the "consolidated lookthrough approach" in determining the types of property owned by the distributing corporation.
It is our view that, where a distributing corporation holds shares of a wholly-owned subsidiary, the consolidated lookthrough approach should be used to determine types of property for the purposes of a "distribution", regardless of whether the distributing corporation has significant influence over the subsidiary for accounting purposes.
Treating the shares of the subsidiaries as investment property in your example would permit the shareholders of the distributing corporation to receive disproportionate amounts of underlying cash, business property and investment property, a result which we believe would be contrary to the policy of paragraph 55(3)(b).
You argue that our view set out above is inconsistent with public pronouncements of this Department, and in particular comments made by Ted Harris in his paper delivered at the 1991 Canadian Tax Foundation Annual Conference. The relevant comment in that paper, on page 14:2 was:
If no significant influence exists, this approach (i.e. the consolidated lookthrough approach) will not generally be used. (emphasis added)
Those remarks reflect a general position which is not appropriate where the distributing corporation controls the corporation in which it holds shares.
The foregoing comments represent our general views with respect to the subject matter of your letter. In accordance with paragraph 21 of Information Circular 70-6R2 the comments expressed herein do not constitute an advance income tax ruling and consequently are not binding on the Department.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and Interpretations
Directorate
Policy and Legislation Branch
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