4 June 1990 Ruling 900283 F - Technical Review of Corporation Reorganization

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.

SUBJECT:  Technical Review of Corporate Reorganizations Course Material - Lesson 7-Wind-up

We are writing in reply to your memorandum of April 3, 1990 wherein you requested that we conduct a technical review of the participant package regarding the above referenced course material.

1.     Page 2.4, paragraph 1, line 3, we suggest the words "compliance of a prescribed form" be substituted for the words "filing of articles of dissolution".  The suggested wording is consistent with the wording contained in the relevant statute.

2.     Page 2.4, paragraph 2, line 1, we suggest the words "compliance with various notice and other requirements, followed by the filing with the director of "should be added after the words " dissolution under S. 211 requires".  The suggested wording clarifies the steps that must be undertaken by the corporation as required by the relevant statute.

3.     Page 2.4, paragraph 3, line 5, we suggest the words "The corporation ceases to exist on the date shown in the certificate of dissolution."  be added after the words "issue a certificate of dissolution."

4.     Page 2.5, paragraph 4, line 4, we suggest the words ", but subject to any terms imposed by the Director and any rights acquired by any person after its dissolution" be added after the words  "had not been dissolved".

5.     Page 4.7, paragraph 3, line 2, we suggest that the words "by virtue of paragraph 69(5)(a)" be added after "will be subject to tax".  This suggested wording provides the course participant with the reference to the relevant provision of the Act.

6.     Page 4.10, paragraph 6, line 2, we suggest that the words "in paragraph (e) of the cost amount definition in  subsection 248(1)" should be substituted for the words "in s. 248(1)(e).  This revision provides the necessary reference information to the particular provision of the Act for the convenience of the participants.  A similar revision should also be made to the first line of paragraph 7 of that page.

7.     Page 4.10, paragraph 6, line 3, we suggest that the words ,in the absence of an amortized cost amount," should be added after the words "equal to its amortized cost or".   This revision makes it clear to the reader that the amortized cost must be used whenever applicable.

8.     Page 4.10, paragraph 7, line 5, we suggest that the words "paragraphs (b) or (c) of the cost amount definition" should be substituted for "paragraph 248(1)(b) or (c)".  This revision provides the necessary reference information to the particular provision of the Act for the convenience of the participants.

9.     Page 4.11, paragraph 1, line 2, we suggest that the words "paragraph (f) of the cost amount definition" be substituted for the words "paragraph 248(1)(f).

10.     Page 4.15, paragraphs 1 and 2.  The Department's position regarding the application of subsection 78(1) and (2) of the Act are as outlined in paragraph 12(h) of IT-109R which states in part that:

     " ... section 78 will not be applied provided the Department can be assured to its satisfaction that the unpaid amounts will be paid by the parent prior to the respective dates on which subsection 78(1) or (3) would have become operative had the subsidiary not been wound-up".

     In light of the above, we would suggest that the commentary contained in the above referenced paragraphs be revised accordingly.

11.     Page 5.4, last paragraph, briefly discusses the draft regulations regarding the provisions of 1100(2.2) and 1102(14). The draft legislation containing numerous revisions to the CCA regulations was promulgated on December 14, 1989.  As such, we suggest that the above mentioned paragraph should be revised to reflect this fact.

12.     Page 5.5, paragraph 2, we suggest that this issue be further elaborated by adding the following additional comments.

     Under s. 88(1)(c)(ii) the parent is generally deemed to have acquired the property at a cost equal to the deemed proceeds  of disposition of the property to the subsidiary under S.  88(1)(a) of the Act.  In the event that the deemed proceeds otherwise determined pursuant to S.  88(1)(a) are not applicable by virtue of the application of S. 69(11) to the subsidiary, it is unclear as to whether the cost of the property to the parent under S. 88(1)(c)(ii) will be equal to the proceeds as redetermined by S. 69(11).  In the event that S. 69(11) can be viewed as a punitive provision, then the deemed cost to the parent of the property acquired from the subsidiary under S. 88(1)(c)(ii) would not be revised to reflect the deemed proceeds to the subsidiary as determined by virtue of S. 69(11) of the Act.

13.     Part 6.4 of the lesson material which starts on page 5.5, introduces the participant to the provision of paragraph  88(1)(d) of the Act which relates to the "bump" available to certain non-depreciable capital assets under certain conditions. The presentation includes a discussion of the calculation of the "bump".  We suggest that you consider including an example of the calculation as this would greatly assist the participant in grasping the specifics involved.

14.     The third paragraph of part 6.4.2 found on page 5.6 of the lesson  material discusses the butterfly exception to the 88(1)(d) bump.  In our view the wording is broad enough to exclude any property that has previously been transferred in a butterfly reorganization from the 88(1)(d) bump 21(1)(b)

15.     Page 8.2, paragraph 2, line 2, we suggest that the words "under Parts I and IV" be replaced by "under Part I and taxes payable under Part IV".

16.     Page 8.5, last paragraph, we suggest that the commentary here be revised to note that there are certain exceptions to this statement.  Although these exceptions are subsequently discussed, this paragraph is, in our view, misleading.

17.     Page 8.7, paragraph 5, in light of a recent court decision the Department has in its more recent publications been taking a softer line on the 90%  rule.  The following wording may be more appropriate "In the Department's view the substantially all test will be satisfied where 90% of the taxpayer's income is derived from these similar activities". 21(1)(b)

19.     Page 10.2, paragraph 6, last sentence, we suggest that the words "are" subject to subsections 15(1) and 69(4)" be  substituted for "does not come within the purview of S.69(5)".

20.     Page 7.3, second paragraph, and page 10.3, fourth paragraph, both make mention of section 22 elections being available where accounts receivable are distributed to a shareholder on a winding-up.  It should be noted that the conditions set out in section 22 will need to be satisfied before such an election can be made.

21.     Page 10.3, last paragraph, is somewhat misleading.  By virtue of paragraph 88(1)(d.l) subsection 84(2) does not apply where subsection 88(1) applies to the winding:up.

22.     Page 10.7, paragraph 2, line 1, we suggest that the reference to "88(2)(b)(iv)" be replaced with the reference to "88(2)(a)(iv)" as this appears to be the correct ITA reference.

Enclosed herewith is a copy of pages 2.1 to 2.5 the course material which includes additional suggested revisions as indicated therein, for whatever action you consider appropriate.

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch