CRA rules that an amalgamation which uses a Plan of Arrangement to avoid the usual corporate requirement for the predecessors to be in the same jurisdiction qualifies as a good amalgamation – and also permits a contrived s. 135.1 “allowable disposition”

S. 135.1 allows qualifying members of agricultural cooperative corporations (“ACCs”) to defer the inclusion of patronage dividends by taking them in the form of shares which are not redeemable for five years otherwise than on an “allowable disposition” – so that the income inclusion is deferred until the shares’ disposition. An “allowable disposition” includes a disposition following the taxpayer ceasing to be a member.

As a preliminary step in the spin-off by an ACC of one of its two businesses under a Plan of Arrangement, CRA is allowing all of the members to be deemed under the Plan to have ceased to be members so that all the shares of one of the two classes can then be redeemed for cash (with resulting income inclusions to the members).

As part of the same Plan, the ACC will be amalgamated with a subsidiary corporation (“Subco”) which was incorporated under a different statute, with Amalco being considered to be formed under that same other statute. CRA ruled that this amalgamation will be considered to be a s. 87(1) amalgamation.

Neal Armstrong. Summaries of 2015-0564981R3 under s. 135.1(1) - allowable disposition, and s. 87(1).