26 March 2013 External T.I. 2014-0523251E5 F - Acquisition of control and amalgamation

CRA Tags

87(2)(a) 256(9)

2014-0527231E5 F is quite similar to this except that it deals with the situation where a s. 256(9) election is not made

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Translation

Translation disclaimer

This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Issues: Under the specific circumstances described in the letter, whether there would be more than one taxation year on the date of the acquisition of control followed by an amalgamation. Whether the transactions completed at the same date but before the acquisition of control would have to be considered for tax purposes in the taxation year deemed to end immediately before the acquisition of control.

Position: Under the assumptions of the hypothetical situation described in the letter, the positions taken in paragraphs 9 and 11 of IT-474R2 do not apply. Under such circumstances, we would consider that two taxation years end on the date of the acquisition of control and amalgamation. One of those taxation years would end immediately before the particular time at which the control was acquired, when an election is made pursuant to subsection 256(9). The other taxation year-end would occur immediately before the amalgamation, which time would be determined according to the ordering provided for in the plan of arrangement or the closing agenda of the transactions completed during the day (therefore following the acquisition of control). The transactions completed during the day before the acquisition of control would have to be considered for tax purposes in the taxation year ending immediately before the acquisition of control, assuming that the order of the transactions is logical.

Reasons: Wording of the Act and previous positions.

XXXXXXXXXX
2014-052325
Sylvie Labarre, CPA, CA

March 26, 2014

Dear Madam,

Subject: Taxation years

This is in response to your e-mail of March 7, 2014 in which you requested our views with respect to the time of taxation year ends in the following hypothetical situation.

Unless otherwise indicated, all statutory references herein are references to the provisions of the Income Tax Act (the "Act").

Hypothetical Situation

On January 18 of 20X1, various transactions were scheduled under a plan of arrangement or a closing agenda, as the case may be. According to this plan or agenda, the transactions occurred in the following order:

1. Sale of assets of the corporation;
2. Rollover of shares in the capital stock of the corporation;
3. Acquisition of control of the corporation (occurring in fact at 18:00 hours); and
4. Amalgamation of the corporation and the acquirer who had acquired its control.

The Plan of Arrangement or Closing Agenda, as the case may be, did not contain details as to the exact time of the transactions. The contracts, the amalgamation agreement and the certificate of amalgamation did not contain any reference to the timing of the transactions or the amalgamation.

The corporation made an election pursuant to subsection 256(9) so that the control was deemed to have been acquired at 18:00 hours, the time on January 18 when the control was actually acquired.

Questions

You wish to know if several taxation years would occur in a situation such as the hypothetical situation. In addition, you wish to know in which taxation year the transactions of January 18, 20X1 that occurred before the acquisition of control would be included.

Our Comments

This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings and Technical Interpretations.

In this situation, the documents and the certificate of amalgamation do not state the times at which the transactions took place.

Furthermore, since you indicated that by making the election under subsection 256(9), the acquisition of control was deemed to occur at 18:00 hours on January 18, 20X1, we have concluded that the effective time of the acquisition of control was at 18:00 hours.

Where a corporation does not carry out other transactions outside the normal course of its business on the day of the amalgamation and the certificate of amalgamation does not contain a reference to a time on the day of the amalgamation, we generally consider that the amalgamation occurs at the beginning of the day and there is a taxation year end immediately before that time, i.e., at the end of the previous day.

On the other hand, our position is different where a plan of arrangement or a closing agenda provides that several transactions outside the normal course of business occur during the day of an amalgamation in addition to an acquisition of control and the amalgamation. If the transactions are effected in a logical sequence during the day, the Canada Revenue Agency will consider that the amalgamation occurs at the time established by the logical order of the transactions. In the hypothetical situation indicated above, this time is after the effective time of the acquisition of control.

Thus, by reason of the subsection 256(9) election, a deemed taxation year end occurs immediately before the effective time of the acquisition of control by virtue of paragraph 249(4)(a). In the current situation, this would be at the time immediately before 18:00 hours on January 18, 20X1.The corporation must take into account the taxation consequences of the asset sale and the rollover transaction that occurred before the acquisition of control in the corporation’s taxation year that terminated immediately before the effective time of the acquisition of control.

In addition, a new taxation year of the corporation would be deemed to commence at 18:00 hours on January 18, 20X1 by virtue of paragraph 249(4)(b).

Furthermore, given that the amalgamation occurs after all the January 18, 20X1 transactions, including the acquisition of control, and that, by virtue of the ordering of the transactions established in the Plan of Arrangement or the Closing Agenda, the effective time of the acquisition of control is at 18:00 hours, the second taxation year of the corporation terminates immediately before the amalgamation by virtue of paragraph 87(2)(a). The timing of the end of the second taxation year would not be earlier than 18:00 under the logical order of the day's transactions on January 18, 20X1.

The corporation would therefore technically have two taxation years that would be deemed to end during January 18, 20X1. The second taxation year of the corporation would be very short.

We hope that our comments will be of assistance.

Best regards,

Stéphane Prud'Homme, Notary, M. Fisc.
for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch

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Text of Severed Letter

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.

Principales Questions: Under the specific circumstances described in the letter, whether there would be more than one taxation year on the date of the acquisition of control followed by an amalgamation. Whether the transactions completed at the same date but before the acquisition of control would have to be considered for tax purposes in the taxation year deemed to end immediately before the acquisition of control.

Position Adoptée: Under the assumptions of the hypothetical situation described in the letter, the positions taken in paragraphs 9 and 11 of IT-474R2 do not apply. Under such circumstances, we would consider that two taxation years end on the date of the acquisition of control and amalgamation. One of those taxation years would end immediately before the particular time at which the control was acquired, when an election is made pursuant to subsection 256(9). The other taxation year-end would occur immediately before the amalgamation, which time would be determined according to the ordering provided for in the plan of arrangement or the closing agenda of the transactions completed during the day (therefore following the acquisition of control). The transactions completed during the day before the acquisition of control would have to be considered for tax purposes in the taxation year ending immediately before the acquisition of control, assuming that the order of the transactions is logical.

Raisons: Wording of the Act and previous positions.

XXXXXXXXXX
2014-052325
Sylvie Labarre, CPA, CA

Le 26 mars 2014

Madame,

Objet : Années d'imposition

La présente est en réponse à votre courrier électronique du 7 mars 2014 dans lequel vous nous demandez notre opinion relativement aux moments de fin d'années d'imposition survenant dans la situation hypothétique suivante.

À moins d'indication contraire, tous les renvois législatifs dans la présente sont des renvois aux dispositions de la Loi de l'impôt sur le revenu (ci-après la « Loi »).

Situation hypothétique

Le 18 janvier de l'année 20X1, plusieurs opérations seraient prévues aux termes du plan d'arrangement ou de l'agenda de clôture, selon le cas. Selon ce plan ou cet agenda, les opérations surviendraient dans l'ordre suivant :

1. Vente d'éléments d'actif de la société;
2. Roulement d'actions du capital-actions de la société;
3. Acquisition du contrôle de la société (le contrôle serait effectivement acquis à 18 heures); et
4. Fusion de la société et de l'acquéreur ayant acquis le contrôle de la société.

Le plan d'arrangement ou l'agenda de clôture, selon le cas, ne comporterait aucune précision quant à l'heure exacte des transactions. Les contrats, la convention de fusion et le certificat de fusion ne contiendraient aucune mention de l'heure des transactions ou de la fusion.

La société effectuerait le choix prévu au paragraphe 256(9) afin que le contrôle soit réputé acquis à 18 heures, soit le moment du 18 janvier où le contrôle serait effectivement acquis.

Questions

Vous désirez savoir si plusieurs années d'imposition surviendraient dans une situation comme celle indiquée dans la situation hypothétique. De plus, vous désirez savoir dans quelle année d'imposition seraient incluses les opérations du 18 janvier 20X1 qui sont survenues avant l'acquisition de contrôle.

Nos commentaires

La présente interprétation technique offre des commentaires généraux sur des dispositions contenues dans la Loi et d'autres lois connexes. Cela n'a pas comme but de confirmer le traitement fiscal relativement à une situation donnée, mais plutôt de vous aider à le déterminer. Notre Direction ne confirme le traitement fiscal relatif à des opérations données que dans le cadre d'une demande de décision anticipée en matière d'impôt sur le revenu présentée de la façon décrite dans la circulaire d'information IC 70-6R5, Décisions anticipées en matière d'impôt sur le revenu.

Dans la présente situation, les documents et le certificat de fusion ne font pas mention des heures auxquelles les opérations se sont déroulées.

Par ailleurs, étant donné que vous indiquiez qu'en faisant le choix prévu en vertu du paragraphe 256(9), l'acquisition de contrôle serait réputée survenir à 18 heures le 18 janvier 20X1, nous avons conclu que l'heure effective de l'acquisition de contrôle était à 18 heures.

Lorsqu'une société n'effectue pas d'autres opérations hors du cours normal de l'exploitation de son entreprise au cours de la journée de la fusion et lorsque le certificat de fusion ne contient aucune mention d'une heure de la journée de la fusion, nous considérons généralement que la fusion survient au début de la journée et qu'il y a une fin d'année d'imposition immédiatement avant ce moment soit, à la fin de la journée précédente.

Par contre, notre position est différente lorsqu'un plan d'arrangement ou un agenda de clôture prévoit que plusieurs opérations hors du cours normal de l'entreprise surviennent au cours de la journée de la fusion, en plus d'une acquisition de contrôle et de la fusion. Si les opérations s'effectuent au cours de la journée dans un ordre logique, l'Agence du revenu du Canada considérera que la fusion survient au moment établi selon l'ordre logique des transactions. Dans la situation hypothétique indiquée ci-dessus, ce moment suivrait l'heure effective de l'acquisition de contrôle.

Ainsi, en raison du choix prévu au paragraphe 256(9), il y aurait une fin d'année d'imposition réputée se terminer immédiatement avant l'heure effective de l'acquisition de contrôle en vertu de l'alinéa 249(4)a). Dans la présente situation, il s'agirait du moment immédiatement avant 18 heures le 18 janvier 20X1. La société devrait tenir compte des conséquences fiscales reliées aux opérations de vente d'éléments d'actif et de roulement d'actions qui sont survenues avant l'acquisition de contrôle dans l'année d'imposition de la société se terminant immédiatement avant l'heure effective de l'acquisition de contrôle.

De plus, une nouvelle année d'imposition de la société serait réputée commencer à 18 heures le 18 janvier 20X1 en vertu de l'alinéa 249(4)b).

Par ailleurs, étant donné que la fusion surviendrait après toutes les opérations de la journée du 18 janvier 20X1, dont l'acquisition de contrôle, et ce, en vertu de l'ordre des opérations établies au plan d'arrangement ou à l'agenda de clôture, et étant donné que l'heure effective de l'acquisition de contrôle est à 18 heures, la deuxième année d'imposition de la société se terminerait immédiatement avant la fusion en vertu de l'alinéa 87(2)a). Le moment de cette fin de deuxième année d'imposition ne serait pas antérieur à 18 heures selon l'ordre logique des opérations de la journée du 18 janvier 20X1.

La société aurait donc techniquement deux années d'imposition qui seraient réputées se terminer le 18 janvier 20X1. La deuxième année d'imposition de la société serait de très brève durée.

Nous espérons que ces commentaires vous seront utiles.

Nous vous prions d'agréer, Madame, l'expression de nos sentiments les plus distingués.

Stéphane Prud'Homme, notaire, M.Fisc.
pour le directeur
Division des réorganisations
Direction des décisions en impôt
Direction générale de la politique législative
et des affaires réglementaires

Summaries

Summary Under

Tax Topics - Income Tax Act - Section 249 - Subsection 249(4)

double taxation year ends where transactions occur on the closing date before acquisition and amalgamation

Following a sale of assets of a corporation and a rollover of its shares on 18 January 20X1, an acquisition of control of the corporation occurs at 18:00 hours and it then is amalgamated with the acquirer. The plan of arrangement or closing agenda, as the case may be, does not specify particular times at which these transactions occur and the corporation elects under s. 256(9) for the acquisition of control to occur at 18:00 hours. Will multiple year ends occur as a result and, if so, in which taxation year will the preliminary transactions be considered to occur?

CRA stated (TaxInterpretations translation):

Where a corporation does not effect transactions outside the ordinary course of business on the day of an amalgamation for which the certificate of amalgamation does not specify the time of the amalgamation, we consider that the amalgamation generally will occur at the beginning of the day… . In contrast, our position is different where a plan of arrangement or a closing agenda provides for various transactions out of the ordinary course of business to occur on the day of the amalgamation in addition to the acquisition of control and the amalgamation… If the transactions are effected...in a logical order...[CRA] will consider that the amalgamation occurs at the time established by the logical order of the transactions. ...[Here] this time is after the effective time of the acquisition of control. at a time determined in accordance with the logic of the transactions. …

[B]y reason of the subsection 256(9) election, a deemed taxation year end occurs…at the time immediately before 18:00 hours… .The corporation must take into account the taxation consequences of the sale transactions…and the share rollover …in the taxation year…which terminated immediately before the effective time of the acquisition of control. …

Furthermore, given that the amalgamation occurs after all the transactions of January 18…including the acquisition of control…at 18:00 hours, the second taxation year of the corporation terminates immediately before the amalgamation by virtue of paragraph 87(2)(a). … The corporation would therefore technically have two taxation years that would be deemed to end during January 18, 20X1. The second ... would be very short.