31 October 1994 External T.I. 9420595 - NON-CAPITAL LOSSES

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:

How are non-capital losses carryforward determined if there is an amalgamation of wholly-owned subsidiaries and then a wind-up of the amalgamated corporation into its parent?

Position TAKEN:

Pursuant to subsection 87(2.1) the non-capital losses of the subsidiaries become non-capital losses of the amalgamated corporation and pursuant to subsection 88(1.1) the non-capital losses of the amalgamated corporation become non-capital losses of the parent on the wind-up.

Reasons FOR POSITION TAKEN:

Applicable provisions of the Act

		942059
XXXXXXXXXX		A. Seidel

Attention: XXXXXXXXXX

October 31, 1994

Dear Sirs:

This is in reply to your letter dated August 8, 1994 with respect to the application of subsections 87(2.1) and 88(1.1) of the Income Tax Act (the "Act").

It appears that your enquiry relates to specific taxpayers and certain transactions that they wish to carry out. Confirmation of the tax consequences of specific proposed transactions will only be provided in response to a request for an advance income tax ruling and therefore we are unable to comment on your specific situation. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2 dated September 28, 1990. Nevertheless, we are able to provide you with the following general comments.

In the situation where there has been an amalgamation of two or more corporations, subsection 87(2.1) of the Act provides that, for the purposes of determining the new corporation's non-capital losses, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation. Paragraphs 87(2.1)(d) and (e) of the Act put certain restrictions on how those losses can be applied by the new corporation. Therefore, in the situation where two or more wholly-owned subsidiaries of a corporation amalgamate, the non-capital losses of those subsidiaries would become non-capital losses of the amalgamated corporation pursuant to subsection 87(2.1) of the Act. The deductibility of these losses would be subject to the restrictions in paragraphs 87(2.1)(d) and (e) of the Act, in addition to those found in section 111 of the Act.

In the situation where a parent winds up a wholly-owned subsidiary pursuant to the provisions of subsection 88(1) of the Act, subsection 88(1.1) of the Act provides that the non-capital losses of the subsidiary are deemed to be non-capital losses of the parent from carrying on the subsidiaries loss business to the extent that the requirements in paragraphs 88(1.1)(a) and (b) of the Act are satisfied. Therefore, in the situation where a parent corporation winds up a subsidiary formed as a result of the amalgamation of two or more of its wholly-owned subsidiaries, the non-capital losses of the amalgamated corporation would be deemed to be non-capital losses of the parent corporation from carrying on the loss business of the amalgamated corporation pursuant to subsection 88(1.1) of the Act to the extent that the requirements in paragraphs 88(1.1)(a) and (b) are satisfied.

These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch