Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Public Corporation - Paragraph (a)shares of Target are considered to be listed up until the completion of the delisting process
- Acquisitionco, a private company, acquires all the shares of Targetco, a public corporation, and immediately amalgamated with it.
- 2017-0723771C6 (2017 CTF Roundtable Q. 12) indicates that once the shares of Targetco were delisted, and provided that CRA accepted that the fact that the Targetco shares no longer existed did not preclude the making of an election under (c)(i) (as to which it was prepared to rule on a case-by-case basis), Amalco could make such election on behalf of Targetco, so that Amalco was not deemed to be a public corporation under s. 87(2)(ii).
- This response was problematic because of the potential need for such a ruling, and passage of perhaps several days before the Targetco shares were delisted.
- In early 2018, a request was made for a Technical Interpretation that if, shortly before the amalgamation of Targetco with Acquisitionco, Acquisitionco held all the Targetco shares and the Stock Exchange had been notified to delist the shares, the Targetco shares would not be considered to be listed for purposes of paragraph (a) of the definition of public corporation.
- CRA declined this request, on the basis that it was bound by the words of the Act.
- Accordingly, it is submitted that the rule in para. (a) of the definition of public corporation – that a listed Canadian corporation is a public corporation - be amended by adding a proviso that this will not be the case where the corporation ceased to be a public corporation under para. (c) because of a valid election or designation.
Words and Phrases
listedTargetco now held 100% by Acquisitionco, and with a formal delisting imminent, is still listed, so that Amalco will be tainted under s. 87(2)(ii)
- Even if a heretofore public corporation has made a good election under (c)(i) of the s. 89(1) definition of public corporation to cease to be a public corporation, it will continue to be a public corporation under para. (a) of the definition at that time if its shares are still listed.
- Accordingly, the Joint Committee has submitted that para. (a) should be amended by adding a proviso that the corporation nonetheless will not be considered to be a public corporation under para. (a) if it ceased to be a public corporation under para. (c) because of a valid election or designation.
- By way of background, 2017-0723771C6 indicated that where Acquisitionco acquired all the shares of Targetco, a public corporation, and immediately amalgamated with it, Amalco could potentially make an election on behalf of Targetco under (c)(i) of the public corporation definition for Targetco not to be a public corporation so that Amalco was not deemed to be a public corporation under s. 87(2)(ii).
- This response was problematic because this election could not be made by Amalco until the Targetco shares were delisted, which might take several days to occur, and because CRA needed to accept that the fact that the Targetco shares no longer existed did not preclude the making of this election (as to which it was prepared to rule on a case-by-case basis rather than giving any blanket assurances).
- CRA recently declined to give a Technical Interpretation that if, shortly before the amalgamation of Targetco with Acquisitionco, Acquisitionco held all the Targetco shares and the Stock Exchange had been notified to delist the shares, the Targetco shares would not be considered to be listed for purposes of paragraph (a) of the definition of public corporation.
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