CRA rules on the utilization of the Canadian branch losses of a US affiliate through its continuance to Canada and amalgamation with Profitco

A US parent indirectly holds a profitable Canadian corporation (Canco1), and a US subsidiary (USco1) that has been carrying on a branch business in Canada at a loss. In order that Canco1 can access the non-capital losses of USco1, USco1 will be continued twice: the first time, perhaps into another US jurisdiction that has better continuance provisions; and the second time, into a provincial jurisdiction, where it (for US tax reasons) will initially be a ULC, but then will convert to a regular business corporation. USco1 will then be continued under the CBCA, in order that it can amalgamate with Canco1, which is a CBCA corporation.

Rulings included that USco1 will continue to be the same corporation following the continuances and that, in light inter alia of s. 87(2.1), the non-capital losses of USco1 will be available to be utilized by Amalco (which will continue to carry on the USco1 business).

Neal Armstrong. Summary of 2020 Ruling 2019-0819871R3 under s. 87(2.1).