15 May 1997 External T.I. 9710025 - WHETHER "INCORPORATED" IN YEAR AMALGAMATED

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 an amalgamated corporation is "incorporated" in Canada at the time it is amalgamated under the CBCA or Ontario Business Corporations Act for purposes of proposed 206(1.1)(d)(i)(A) or (iii)(E).

Position:

No.

Reasons:

Amalgamation does not result in the "incorporation" of an entity at the time of amalgamation for purposes of clause (E); however, prior incorporations in Canada will be recognized for purposes of clause (A).

XXXXXXXXXX 971002

Attention: XXXXXXXXXX

May 15, 1997

Dear Sirs:

Re: Substantial Canadian Presence

This is in reply to your letter of April 10, 1997, in which you ask us to provide an interpretation concerning the meaning of the word "incorporated" as used in proposed clauses 206(1.1)(d)(i)(A) and 206(1.1)(d)(iii)(E) of the Income Tax Act (the "Act"). In particular you ask whether it is our view that an amalgamated corporation is considered to be incorporated at the time of an amalgamation pursuant to either the Business Corporations Act (Ontario) ("OBCA") or the Canada Business Corporations Act ("CBCA") for purposes of these two clauses.

Based on the comments in R. v. Black & Decker Manufacturing Co. Ltd. (1975) 1 S.C.R. 411 it is our view that an amalgamated corporation is not "incorporated" by virtue of amalgamation under either of the above-noted business corporations statutes. Neither is there any provision in the Act which provides that an amalgamated corporation is to be treated as having been incorporated at the time of its amalgamation; in this regard paragraph 87(2)(a) of the Act does not assist. Consequently, an amalgamated corporation will be unable to benefit from the relief provided by proposed clause 206(1.1)(d)(iii)(E) of the Act.

With respect to proposed clause 206(1.1)(d)(i)(A), however, please note our position that a corporation resulting from an amalgamation under the CBCA is incorporated in Canada if each predecessor corporation was incorporated in Canada. This position takes into account the comments in the Black & Decker case (cited above) to the effect that under amalgamation the predecessor entities continue to exist. Although the Department's position was adopted with respect to the definition of "Canadian corporation" in subsection 89(1) of the Act and is no longer being maintained in light of the 1994 amendment, we will continue to apply it in the interpretation of clause 206(1.1)(d)(i)(A) as proposed and will extend it to amalgamations under provincial statutes which are similar in effect to the CBCA, such as the OBCA.

Although the foregoing comments are not binding on the Department, we trust they assist.

Yours truly,

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