15 April 2014 External T.I. 2014-0527231E5 F - Acquisition of control and amalgamation

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87(2)(a) 256(9)

2014-0523251E5 F is quite similar to this except that it deals with the situation where a s. 256(9) election is instead 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: 1. Under the specific circumstances described in the letter, whether there would be more than one taxation year resulting from the acquisition of control and the amalgamation. The acquisition of control and the amalgamation would occur on the same date. The corporation would not elect pursuant to subsection 256(9).
2. In which taxation year would the transactions completed at the same date but before the acquisition of control be included?

Position: 1. Under the assumptions of the hypothetical situation described in the letter, the position taken in paragraphs 9 and 11 of IT-474R2 do not apply. Under such circumstances, we would consider that two taxation years end because of the acquisition of control and the amalgamation. One taxation year would end immediately before the beginning of the day in which control is acquired. 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 not before the completion of the transactions that occurred before the amalgamation according to the arrangement or the closing agenda).
2. The transactions completed during the day before the acquisition of control and the amalgamation would have to be considered for tax purposes in the taxation year ending immediately before the amalgamation, assuming that the order of the transactions is logical.

Reasons: Wording of the Act and previous positions.

XXXXXXXXXX
2014-052723
Sylvie Labarre, CPA, CA

April 15, 2014

Dear Madam,

Subject: Taxation Years

This is in response to your e-mail of April 9, 2014, in which you requested our opinion regarding the time of the taxation year ends in the following hypothetical situation.

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

Hypothetical Situation

A Plan of Arrangement or Closing Agenda, as the case may be, provided for the following transactions to occur on January 18, 20X1. Under the plan or agenda, the transactions would occur in the following order:

1. Sale of some assets of the corporation;
2. Rollover of share in the capital of the corporation;
3. Acquisition of control of the corporation; and
4. Amalgamation of the corporation with its acquirer who 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 did not make an election under subsection 256(9).

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

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, or 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.

According to the assumptions you have provided, an election under subsection 256(9) was not made. Thus, there would be a taxation year end deemed to occur immediately before the commencement of January 18, 20X1, by virtue of paragraph 249(4)(a) and subsection 256(9).

A new taxation year of the corporation would be deemed to commence at the beginning of January 18, 20X1, by virtue of paragraph 249(4)(b).

Furthermore, under the assumptions described above, transactions that are outside the normal course of the business would have occurred on the same day as the amalgamation and before the merger, pursuant to the sequencing of the transactions provided under the Plan of Arrangement or the Closing Agenda. In such a situation, a taxation year of the corporation would end immediately before the amalgamation under paragraph 87(2)(a), taking into account the logical order of the transactions that occurred on the day of the amalgamation. The time of such taxation year end thus could not be before the effective time of the transactions occurring before the amalgamation (taking the into account the logical order of the transactions).

The Act does not contain any deeming provision permitting recognition of transactions, effected during the day on January 18, 20X1 prior to the acquisition of control, during the taxation year ending immediately before the commencement of January 18, 20X1. Subsection 256(9) cannot be interpreted as having such a consequence. Therefore, the corporation must account for the tax consequences respecting the asset sale and share rollover transactions (which occurred before the acquisition of control and the amalgamation), in the taxation year of the corporation terminating immediately before the amalgamation.

The corporation thus technically has two taxation years, one which is deemed to terminate at the end of January 17, 20x1, and the other which would end during January 18, 20X1. The corporation’s second taxation year would be very short.

We hope that our comments are 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: 1. Under the specific circumstances described in the letter, whether there would be more than one taxation year resulting from the acquisition of control and the amalgamation. The acquisition of control and the amalgamation would occur on the same date. The corporation would not elect pursuant to subsection 256(9).
2. In which taxation year would the transactions completed at the same date but before the acquisition of control be included?

Position Adoptée: 1. Under the assumptions of the hypothetical situation described in the letter, the position taken in paragraphs 9 and 11 of IT-474R2 do not apply. Under such circumstances, we would consider that two taxation years end because of the acquisition of control and the amalgamation. One taxation year would end immediately before the beginning of the day in which control is acquired. 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 not before the completion of the transactions that occurred before the amalgamation according to the arrangement or the closing agenda).
2. The transactions completed during the day before the acquisition of control and the amalgamation would have to be considered for tax purposes in the taxation year ending immediately before the amalgamation, assuming that the order of the transactions is logical.

Raisons: Wording of the Act and previous positions.

XXXXXXXXXX
2014-052723
Sylvie Labarre, CPA, CA

Le 15 avril 2014

Madame,

Objet : Années d'imposition

La présente est en réponse à votre courrier électronique du 9 avril 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; 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 n'effectuerait pas le choix prévu au paragraphe 256(9).

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.

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.

Selon les hypothèses que vous nous donnez, le choix prévu au paragraphe 256(9) ne serait pas effectué. Ainsi, il y aurait une fin d'année d'imposition réputée se terminer immédiatement avant le début du 18 janvier 20X1 en vertu de l'alinéa 249(4)a) et du paragraphe 256(9).

Une nouvelle année d'imposition de la société serait réputée commencer au début de la journée du 18 janvier 20X1 en vertu de l'alinéa 249(4)b).

Par ailleurs, selon les hypothèses mentionnées, des opérations qui sont hors du cours normal de l'exploitation de l'entreprise auraient eu lieu dans la même journée que la fusion et avant celle-ci et ce, en vertu de l'ordre des opérations établies au plan d'arrangement ou à l'agenda de clôture. Dans une telle situation, une année d'imposition de la société se terminerait immédiatement avant la fusion en vertu de l'alinéa 87(2)a) en tenant compte de l'ordre logique des opérations survenues au cours de la journée de la fusion. Le moment de cette fin d'année d'imposition ne serait donc pas antérieur à l'heure effective des opérations survenues avant la fusion (tenant compte de l'ordre logique des opérations).

La Loi ne contient aucune disposition déterminative qui permettrait de reconnaître les opérations effectuées dans la journée du 18 janvier 20X1 avant l'acquisition de contrôle au cours de l'année d'imposition qui se termine immédiatement avant le début du 18 janvier 20X1. Le paragraphe 256(9) ne peut pas être interprété comme ayant une telle conséquence. Ainsi, la société devrait tenir compte des conséquences fiscales reliées aux opérations de vente d'éléments d'actif et de roulement d'actions, lesquelles seraient survenues avant l'acquisition de contrôle et avant la fusion, dans l'année d'imposition de la société se terminant immédiatement avant la fusion.

La société aurait donc techniquement deux années d'imposition dont une serait réputée se terminer à la fin de la journée du 17 janvier 20X1 et une autre qui se terminerait au cours de la journée du 18 janvier 20X1. La deuxième année d'imposition de la société serait de 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)

key corporate transactions moments before acquisition of control and amalgamation result in such transactions falling in a stub year

A plan of arrangement provided for the following transactions to occur on 18 January 20X1 and in the indicated order but without a particular hour for each transaction being specified:

Sale of some assets of the corporation.
Roll of its shares.
Acquisition of its control (with no s. 256(9) election being made).
Amalgamation with the acquirer.

After noting that s. 249(4)(a) deemed there to be a taxation year end immediately before the commencement of January 18 (i.e., at the end of January 17) and that the CRA policy (per 2014-0523251E5 F), was that the year end resulting from the amalgamation could not precede key corporate transactions occurring on the day of the amaglamation and which logically occurred before the amlgamation, CRA stated (TaxInterpretations translation):

The time of such taxation year end [from the amalgamation] thus could not be before the effective time of the transactions occurring before the amalgamation (taking the into account the logical order of the transactions).

...Therefore, the corporation must account for the tax consequences respecting the asset sale and share rollover transactions (which occurred before the acquisition of control and the amalgamation), in the taxation year of the corporation terminating immediately before the amalgamation.

The corporation thus technically has two taxation years, one which is deemed to terminate at the end of January 17, 20x1, and the other which would end during January 18, 20X1. The corporation’s second taxation year would be very short.

Summary Under

Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(a)

same day amalgamation following control acquisition gives rise to two taxation year ends if out-of-normal course transactions occur on day of closing

A plan of arrangement provides for the following transactions to occur on 18 January 20X1 and in the indicated order but without a particular hour for each transaction being specified:

Sale of some assets of the corporation.
Roll of its shares.
Acquisition of its control (with no s. 256(9) election being made).
Amalgamation with the acquirer.

In addition to noting that s. 249(4)(a) deemed there to be a taxation year end immediately before the commencement of January 18, CRA stated (TaxInterpretations translation):

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, or 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. ...

The time of such taxation year end [from the amalgamation] thus could not be before the effective time of the transactions occurring before the amalgamation (taking the into account the logical order of the transactions).

...Therefore, the corporation must account for the tax consequences respecting the asset sale and share rollover transactions (which occurred before the acquisition of control and the amalgamation), in the taxation year of the corporation terminating immediately before the amalgamation.

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15 April 2014 External T.I. 2014-0527231E5 F - Acquisition of control and amalgamation

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