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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether a particular triangular amalgamation will be subject to the provisions of paragraph 256(7)(c) or subparagraph 256(7)(b)(i)?
Position: Paragraph 256(7)(c) will apply to deem an acquisition of control.
Reasons: Subparagraph 256(7)(b)(i) will not apply since it cannot be said that control was acquired solely because of the amalgamation.
January 7, 2002
Re: Acquisition of Control
We are writing in response to your letter of January 8, 2001, wherein you requested our comments with respect to the applicability of paragraph 256(7)(c) of the Income Tax Act (the "Act") to a situation whereunder shareholders of a public company ("Pubco") receive shares of a loss company ("Lossco") on a triangular amalgamation of Pubco and a wholly-owned subsidiary of Lossco.
You note that, in a situation where the shareholders of Pubco acquire more than 50% of the shares of Lossco on the triangular amalgamation, paragraph 256(7)(c) will deem there to be an acquisition of control of Lossco. However, you enquire as to whether subparagraph 256(7)(b)(i) of the Act will apply to negate the application of paragraph 256(7)(c) to this situation. Subparagraph 256(7)(b)(i) of the Act provides that on an amalgamation "control of a corporation is deemed not to have been acquired by any person or group of persons solely because of the amalgamation unless it is deemed by subparagraph (ii) or (iii) to have been so acquired".
It is our opinion that, in the triangular amalgamation described above, subparagraph 256(7)(b)(i) of the Act would not be applicable since it cannot be said that control of Lossco was acquired solely because of the amalgamation. Consequently, paragraph 256(7)(c) of the Act will apply to the triangular amalgamation.
These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular 70-6R4 dated January 29, 2001 and are not considered to be binding on the Canada Customs and Revenue Agency.
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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