11 May 1998 External T.I. 9807605 - AMALGAMATION

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:

Aging of tax accounts as a consequence of two amalgamations occurring on the same day.

Position:

A corporation which is created by an amalgamation and which is subsequently amalgamated with another corporation on the same day will have a taxation year. Therefore, the first amalgamation is relevant in determining the aging of tax accounts in the predecessor corporations.

Reasons:

The corporation created by an amalgamation will have a taxation year which begins at the time of the first amalgamation and which ends immediately before the second amalgamation even if both amalgamations occur on the same day.

XXXXXXXXXX							980760
D. Boychuk

Attention: XXXXXXXXXX 

May 11, 1998

Dear Sirs:

Re: Effect of Multiple Amalgamations

We are writing in response to your letter of March 25 1998 wherein you requested our views on the application of paragraph 87(2)(a) of the Income Tax Act (Canada)(the "Act") to the transactions described below.

1. A taxable Canadian corporation and a public corporation ("Parent Co.") owns 70% of the shares of another taxable Canadian corporation and public corporation ("Pubco"). The remaining shares of Pubco are held by the public. Pubco has non-capital losses as defined in subsection 111(8) of the Act and other tax attributes the life of which are measured in taxation years.

2. Parent Co. wishes to acquire the remaining 30% of the shares of Pubco by way of an "amalgamation squeeze out" and, for this purpose, Parent Co. causes the transactions described in paragraphs 3-6 to occur.

3. Parent Co. incorporates a wholly-owned subsidiary ("Newco"). Newco will be a taxable Canadian corporation.

4. Parent Co. transfers its shares of Pubco to Newco in exchange for common shares of Newco.

5. Newco and Pubco amalgamate within the meaning of subsection 87(1) as modified by paragraph 87(9)(a) to create Amalco I (the "First Amalgamation"). Under the terms of the amalgamation, Parent Co. receives Amalco I common shares and the public shareholders receive Parent Co. shares. The shares of Pubco owned by Newco are cancelled for no consideration.

6. On the same day as the First Amalgamation but following that amalgamation, Parent Co. and Amalco I amalgamate (the "Second Amalgamation") within the meaning of subsection 87(1) to form Amalco II. The purpose of the Second Amalgamation is to allow Parent Co. (now Amalco II) to utilize tax attributes of Amalco I which were inherited from Pubco.

7. On both the First and Second Amalgamations, no effective time is specified on the Certificates of Amalgamation.

You have referred to Interpretation Bulletin IT-474R, paragraph 9 which states that where the certificate of amalgamation does not specify a particular effective time on the date of an amalgamation, the Department considers the amalgamation to occur on the earliest moment on that date. That being the case, you have asked whether the tax attributes of Pubco available to Amalco II will be considered to have aged by one or two taxation years as a consequence of the First and Second Amalgamations.

Position TAKEN

Paragraph 87(2)(a) of the Act deems Amalco I to be a new corporation, the first taxation year of which commences at the time of the First Amalgamation and which ends immediately before the Second Amalgamation. In the situation outlined above, Amalco I will exist for some period of time prior to the Second Amalgamation and, therefore, Amalco I will have a taxation year. In the result, Pubco's tax attributes will be aged by two taxation years (that is, the taxation year ends of Pubco and Amalco I).

We trust that our comments will be of assistance.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch