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.
Question 4
Stop-Loss Rules - Corporate Mergers
Mr. X owns 100% of the shares of Opco I and Opco II. There is an insurance policy in Opco II which meets the conditions for grandfathering in subsection 112(3). Mr. X proposes to amalgamate Opco I with Opco II. Because the shares of Opco I are not grandfathered, he believes it will be in his interest to take back fixed-value preferred shares from the amalgamated company as consideration for the shares of Opco I and to take back common shares from the amalgamated company as consideration for Opco II. As a consequence, he believes that all future growth in the common shares of the amalgamated company will effectively be grandfathered for the purposes of the stop-loss rules in subsection 112(3).
Would the Agency confirm that Mr. X's understanding is correct?
Agency's Response
Provided that the amalgamation of Opco I and Opco II meets the requirements under subsection 87(1), a common share of the amalgamated company will be deemed by subsection 131(12) of S.C. 1998, c.19, to be the same share as the share of Opco II for purposes of paragraph 131(11)(b) of S.C. 1998, c.19 (the transitional provisions to subsection 112(3)). Consequently, the common shares of the amalgamated company will be grandfathered for the purposes of the stop-loss rules in subsection 112(3).
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