21 May 1998 External T.I. 9804835 - EXEMPT CORPORATION

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.

Principal Issues: Whether a corporation’s income becomes, and ceases to be, exempt from tax from time to time;

Position: Yes, subject to 149(1)(o.2)(iii) and (iv);

Reasons: Wording of the Act.

XXXXXXXXXX 5-980483
Fouad Daaboul

Attention: XXXXXXXXXX

May 21, 1998

Dear Sirs:

Re: Paragraph 149(1)(o.2) of the Income Tax Act (the “Act”)

We are writing in response to your letter of February 25, 1998, wherein you requested our views on whether a corporation’s status would be changed, from time to time, from taxable to exempt and vice-versa.

Paragraph 149(1)(o.2) of the Act exempts from tax under Part I for a period the income of certain corporations. To be considered such a corporation, two types of tests must be met. The first type of test is the ongoing ownership test pursuant to one of the two subparagraphs: 149(1)(o.2)(iv) or (v) of the Act, depending on whether the corporation has share capital or not. The second type of test relates to the activities carried on by the corporation which would be covered by one of the subparagraphs 149(1)(o.2)(i) to (iii) of the Act.

According to subparagraph 149(1)(o.2)(iii) of the Act, all of the investments of a corporation have to be one of specific investments including investments as stipulated under the Pension Benefits Standards Act, 1985 or a similar law of a province such as Pension Benefits Act (Ontario). Further conditions are required under clauses (A) to (C) of the this subparagraph.

In our view, and subject to the ownership test, where a corporation meets the requirements under subparagraph 149(1)(o.2)(iii) of the Act throughout the period that is the taxation year of the corporation, its income would be considered to be exempt from tax under Part I for that period. The corporation’s income will cease to be exempt for a period whenever any requirement under the said subparagraph fails to be met.

The foregoing comments are an expression of opinion only and are not binding on the Department; however, we trust they will be of assistance to you.

We trust our comments will be of assistance to you.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch