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.
Principal Issues: 1. Who is responsible to pay the debts of the amalgamating corporations?
2. Would the CRA raise a directors' liability assessment on the directors of the amalgamating (Company A), or does the new amalgamated company (Company B) assume the debt of the amalgamating companies?
3. If the assets are transferred assets to Company B from Company A, does the deemed trust exist?
4. If the assets are transferred to Company B from Company A, what collection avenues are there?
5. Can a writ of seizure and sale be requested and assets seized and sold?
6. Can Revenue Collections assess the amalgamated company on the basis of a non-arm's length transfer of property?
7. If the directors resigned from Company A and the two-year limitation for assessing has expired, could Company A be revived?
Position: 1. The amalgamating corporations and the amalgamated corporation are responsible for paying.
2.The amalgamated company (Company B) assumes the debt of the amalgamating company (Company A), and the CRA may collect the debt from either Company A or B. Directors' liability is available against the directors of Company A.
3. Yes. Her Majesty beneficially owns the assets, to the extent of the amount owing.
4. Normal collection action would be available.
5. The CRA may enforce collection by obtaining a writ of seizure and sale to seize and sell the assets.
6. No. Section 160 of the Act does not apply in an amalgamation.
7. Where companies had already amalgamated at the time of the involuntary dissolution, and the amalgamated company was revived, that revival also restores the amalgamating companies. But the restoration is only effective from the date of the amalgamation.
Reasons: 1. S. 87(1)(b) ITA.
2. S. 87(1)(b) ITA.
3. S. 227(4) and (4.1) ITA.
4. S. 87(1)(b) ITA.
5. S. 223(3), (5),(7), and (9) ITA.
6. S. 160 ITA; s. 325 ETA
7. S. 227.1(4) ITA; s. 323(5) ETA.
August 18, 2009
Winnipeg Tax Services Office HEADQUATERS
Revenue Collections Section Income Tax Rulings
Directorate
Attention: Deb Basham, Assistant Director Lindsay Frank
(613) 948-2227
2008-028932
Tax Recovery and Amalgamations
This is in reply to an email from Wayne Barbeau, wherein he posed a number of questions regarding the collection of amounts owing by corporations that have subsequently amalgamated under provincial legislation.
As stated in paragraph 13 of Interpretation Bulletin IT-474R2, under the corporate law in most jurisdictions, the corporate entity formed as a result of an amalgamation is a continuation of the predecessor corporations. As such, the predecessor corporations do not cease to exist when an amalgamation takes place. An amalgamation arises when a certificate of amalgamation is produced.
Questions and Answers
1. Who is responsible for the debt of the amalgamating corporations?
The amalgamating corporations and the amalgamated corporation are liable for the debt. The Canada Revenue Agency ("CRA") may collect the debt from either.
2. Would the CRA raise a directors' liability assessment on the directors of the amalgamating company (Company A), or does the new amalgamated company (Company B) assume the debt of Company A?
Company B assumes the debt of Company A, and the CRA may collect the debt from either Company A or B. However, should either corporation be unable to pay, the CRA may assess the directors of Company A, pursuant to section 227.1 of the Income Tax Act ("ITA") or section 323 of the Excise Tax Act ("ETA"). The directors to be assessed must have been the directors of Company A at the time when the failure to remit or pay took place.
3. If assets are transferred to Company B from Company A and sold, does the deemed trust exist?
The deemed trust exists by virtue of either subsection 227(4) of the ITA or subsection 222(1) of the ETA. These provisions deem amounts deducted or collected, respectively, to be held in trust, pending remittance to the fisc. If Company A did not remit such amounts by the prescribed dates, in accordance with either subsection 227(4.1) of the ITA or subsection 222(3) of the ETA, the Crown beneficially owns Company A's property, to the extent of the amount that Company A should have remitted.
A beneficial ownership in a person's property gives the Crown the right to follow the property into the hands of another person. Therefore, if the property of Company A continues to be the property of Company B, the amalgamation does not affect the collection of the deemed trust. Recovery can be made against either Company A or B. It does not matter, if the property, subject to the deemed trust, has been sold by Company B.
4. If the assets are transferred to Company B from Company A, what collection avenues are there?
The property of Company A continues to be the property of Company B. Company B continues to be liable for the obligations of Company A. Therefore, normal collection action would apply against Company A or Company B.
5. Can a writ of seizure and sale be requested and assets seized and sold?
The CRA may enforce collection of the amount owing by obtaining a writ of seizure and sale to seize and sell the assets.
6. Can Revenue Collections assess Company B on the basis of a non-arm's length transfer of property?
No. A non-arm's length transfer of property assessment under either section 160 of the ITA or section 325 of the ETA would apply where the corporation has divested itself of assets. In an amalgamation, there is no divestiture; rather there is a combining of assets. Therefore neither section 160 nor section 325 would apply when there is an amalgamation.
7. If the directors resigned from Company A and the two-year limitation for assessing them has expired, could Company A be revived?
The CRA would only revive a company where it was involuntarily struck from the corporate registry for failure to file information returns. However, the revival cannot change the fact that the directors have resigned, or change the effect of that resignation. When directors resign from a corporation, subsection 227.1(4) of the ITA and subsection 325(4) of the ETA state that, for an assessment against them to be effective, the CRA must assess them director within 2 years of that resignation.
In the case where companies had already amalgamated at the time of the involuntary dissolution, and the amalgamated company was revived, that revival also restores the amalgamating companies. However, that restoration is effective from the date of the amalgamation only. Accordingly, attempts by the CRA to assess a director of an amalgamating company for amounts owing before the amalgamation would be untenable.
8. XXXXXXXXXX
Should you need clarification or additional information, please do not hesitate to contact Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
c.c. Wayne Barbeau
Heather Sauer
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2009
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2009