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.
Principal Issues:
1. Whether our administrative position on when a corporation is wound-up applies for purposes of subsections 78(2) and 88(1.1).
Position:
1. It would apply to 78(2) but not to 88(1.1).
Reasons:
1. Since subsection 88(1.1) allows the parent corporation to claim the subsidiaries losses in any taxation year beginning after the commencement of the winding-up, a more liberal interpretation of the term "wound up" is not necessary, and therefore for purposes of subsection 88(1.1), we should apply a strict interpretation and not consider a corporation wound up until it had been formally dissolved.
2001-006710
XXXXXXXXXX Karen Power, CA
(613) 957-8953
March 19, 2001
Dear XXXXXXXXXX:
Re: Application of Subsections 78(2) and 88(1.1)
We are writing in reply to your letter of January 21, 2001 wherein you requested our opinion regarding the application of subsections 78(2) and 88(1.1) of the Income Tax Act (the "Act") to the hypothetical situation described in your letter.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R4 dated January 29, 2001. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. We can, however, provide you with the following general comments which we hope will be of assistance.
Under most corporate law, a corporation continues to exist and a wind-up is not completed until the date shown on the certificate of dissolution authorized by the applicable federal or provincial statute. However, as indicated in paragraph 5 of IT-126R2, Meaning of Winding-Up, the Canada Customs and Revenue Agency has administratively taken the position that where the formal dissolution of a corporation is not complete but there is substantial evidence that the corporation will be dissolved within a short period of time, for the purpose of subsections 88(1) and (2) the corporation is considered to have been wound up.
This administrative position would also apply for the purpose of subsection 78(2), such that any unpaid amount which is required by that subsection to be included in computing the subsidiary's income for the taxation year in which it was wound up, would reduce the amount of non-capital losses available to Holdco.
Where a Canadian corporation has been wound up, the provisions of subsection 88(1.1) will apply to permit the parent corporation to deduct the non-capital losses of its subsidiary in computing its taxable income for any taxation year beginning after the commencement of the subsidiary's winding-up to the extent that the requirements in paragraphs 88(1.1)(a) and (b) are satisfied and subject to the limitations in paragraph 88(1.1)(e) and section 111. The administrative concession discussed above has not been extended to subsection 88(1.1) of the Act, and therefore, for purposes of subsection 88(1.1), a corporation will not be considered wound up until it has been formally dissolved. However, once the provisions of subsection 88(1.1) of the Act become applicable, non-capital losses are available in any taxation year beginning after the commencement of the winding-up. Where the formal dissolution occurs after the previous year's tax return has been filed, an amended return can be prepared.
We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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