CRA indicates that there are EIFEL continuity rules regarding amalgamations and windings-up respecting the use of capacity in pre-regime years

Where there have been amalgamations or winding-ups in the pre-regime years where an election has been to access capacity in those years for EIFEL purposes, do the deeming rules in s. 87(2.1)(a.1) or subsection 88(1.11) apply to take into account the pre-regime “excess capacity otherwise determined” and “excess interest” of the predecessor corporations for the purposes of determining the “net excess capacity” of the amalgamated corporation or parent corporation, and the “group net excess capacity” in respect of such amalgamated or parent corporation, as well as in determining the same amounts for other taxpayers in respect of which the particular taxpayer is an eligible pre-regime group entity?

Starting with amalgamations, CRA indicated that s. 87(2.1)(a.1) (when read together with s. 87(2.1)(d)) provides continuity treatment in respect of the various amounts that are relevant in computing the taxpayer’s cumulative unused excess capacity. Although s. 87(2.1)(a.1) does not contain a specific reference to terms used in the transitional rules, the balances described in the transitional rules are modified descriptions of the balances described in s. 87(2.1)(a.1).

Accordingly, s. 87(2.1)(a.1) should provide continuity treatment for the balances of the predecessor corporations in the transitional period for a corporation formed on an amalgamation. The same approach is used for a winding up during that period.

Neal Armstrong. Summary of 3 December 2024 CTF Roundtable, Q.6 under s. 87(2.1)(a.1).