Planning can increase post-compromise tax attributes of a company in CCAA proceedings

It may be desirable for a company that is going through a CCAA restructuring to reduce its non-capital losses (for example, by reversing previous CCA claims) given that it may be better to instead realize income under s. 80(13) (reflecting only half of the unapplied forgiven amounts arising on the CCAA implementation), keeping in mind that with other planning there may be substantial pools to shelter that income, and it can be recognized (under s. 61.4) over five years.

Embedded capital losses in the shares of subsidiaries might be triggered in the year preceding the year of debt settlement so that they would become net capital losses, thereby soaking up the forgiven amount (after first being applied to non-capital losses) before the use of more valuable attributes such as UCC.

It may also be desirable to wind-up a wholly-owned subsidiary under s. 88(1.1) shortly before the CCAA implementation, given that the non-capital losses will be protected from a s. 80(3) grind as they would not be considered NOLs of the parent until after the compromise.

An alluring proposition, if valid, is that contractual claims, whose amount was fully deducted when incurred, will not give rise to a forgiven amount (or other inclusion) when forgiven.

Neal Armstrong. Summaries of Marie-Andrée Beaudry and Dean Kraus, "Selected Income Tax Considerations in the Court-Approved Debt Restructurings and Liquidations," Draft 2015 Annual CTF Conference paper under s. 80(13), s. 80(4), s. 80(3), s. 20(1)(c), s. 80(1) - commercial debt obligation, s. 18(1)(e), s. 224.1, s. 222(2), s. 80(2)(h).