Principal Issues: What are the consequences under Ontario's transitional tax dr/cr if a private corporation voluntarily dissolves and distributes its net assets to its shareholders in a tax year after 2008? What if the corporation incurs a non-capital loss for the year?
Position: When the corporation ceases to have a permanent establishment in Ontario, it must pay its remaining (unamortized) Ontario transitional tax debits in the tax year, or it may claim any remaining Ontario transitional tax credits against a prorated portion of its Ontario income tax payable for the year. Incurring a non-capital loss usually means the corporation has no Ontario income tax payable for the year and its transitional tax credits cannot be applied.
Reasons: A corporation typically ceases to have a permanent establishment when it distributes its net assets to its shareholders during the tax year. However, the corporation may continue to have a deemed permanent establishment in Ontario at its registered or head office under regulation 400(2)(e.1) in which case the corporation will cease to have a permanent establishment in Ontario when it formally dissolves.