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: Will the recent amendment to subparagraph 48.1(1)(a)(ii) of the Income Tax Act (the "Act") apply in a situation where a company ceases to be a small business corporation (SBC) as a result of an amalgamation with a public company whose shares are listed on a prescribed stock exchange in Canada.
Position: No
Reasons: No continuity of shares. Merged corporation does not become public because of the listing.
XXXXXXXXXX 2001-008391
Cornelis Rystenbil, CGA
October 3, 2001
Dear XXXXXXXXXX:
Re: Crystallize Gains on Corporate Merger
This is in reply to your letter of May 1, 2001 in which you ask our views on whether the recent amendment to subparagraph 48.1(1)(a)(ii) of the Income Tax Act (the "Act") would apply in a situation where a corporation ceases to be a small business corporation (SBC) as a result of an amalgamation with a public corporation whose shares are listed on a prescribed stock exchange in Canada.
Written confirmation of the consequences inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. However, we are prepared to provide the following general comments that may be of assistance.
Under subsection 48.1(1) of the Act, an individual can make an election if at any time in a taxation year the individual owns shares of a SBC, as defined in subsection 248(1) of the Act, as capital property and immediately after that time the corporation ceases to be a SBC because a class of its or another corporation's shares is listed on a prescribed stock exchange. In general terms, this election provides for a deemed disposition of the shares, at an elected amount, by the individual immediately before the corporation ceases to be a SBC, and reacquisition of the shares, at that amount, by the individual at the time the corporation ceases to be a SBC.
In a situation involving an amalgamation within section 87 of the Act, there is no provision by which the shares of predecessor corporations are considered to be the same shares as the shares of the continuing corporation for the purposes of the election under subsection 48.1(1) of the Act. In fact, paragraph 87(2)(a) of the Act deems the corporation formed as a result of the amalgamation to be a new corporation. Accordingly an individual would not at any relevant time have shares of a corporation with respect to which the individual could make an election under subsection 48.1(1) of the Act.
In addition, we would like to draw your attention to the provisions of paragraph 87(2)(ii) of the Act which provides that where a predecessor corporation was a public corporation immediately before an amalgamation, the new corporation created through the amalgamation is deemed to be a public corporation at the commencement of its first taxation year. Accordingly, if this provision applies, it would not appear that an election under subsection 48.1(1) of the Act could be made since the new corporation would not cease to be a SBC as a consequence of the listing of a class of shares.
The role of the Canada Customs and Revenue Agency is to administer and enforce the Act as passed by Parliament. The Department of Finance is responsible for tax policy and amendments to the Act. Accordingly, if you have concerns related to the tax policy intent of the recent amendment, you may contact the Department of Finance. In this regard, the Tax Policy Branch of the Department of Finance may be contacted by writing to L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A 0G5.
We trust that these comments will be of assistance.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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