7 November 1990 Ministerial Letter 903108 F - Deductibility of Costs Incurred in Connection with a Takeover Bid

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:  Deductibility of costs incurred in connection with a takeover bid

On November 2, 1990, Mr. Berdugo of your office called our Mr. J. Harms to discuss our response to question 10 at the 1989 Revenue Canada Round Table held at the last national tax conference. We learned that your office is currently considering an assessment of a taxpayer which involves the deductibility of expenses incurred by a corporation that was the target of a takeover bid. Such expenses would include legal fees and fees paid to investment counsel for fairness opinions that were presumably relied upon by the directors in making their recommendation to the shareholders whether to accept or reject the bid.

In the course of this telephone conversation, we advised Mr. Berdugo that we had recently provided a response to the Vancouver District Office on similar issues involving 24(1) Mr. Berdugo requested that we provide you with a copy of that response. We are therefore telecopying herewith copies of the following:

(a)     our memorandum to the Vancouver District Office dated February 16, 1990;

     23

(d)     our memorandum to the Vancouver District Office dated October 11, 1990.

As you will see from reviewing these documents, the Vancouver District Office  24(1)  We did not challenge that assumption in our memorandum of February 16, 1990. The Vancouver District Office then reconsidered their assumption and requested our views on that issue, which we provided to the Vancouver District Office in our memorandum dated October 11, 1990.

241(1)        21(1)(b)  If you require assistance in determining the deductibility of the expenses incurred by the target corporation in your situation, we suggest that you provide us with a description of the facts and the issues and we will try to respond as expeditiously as possible.

for DirectorReorganizations and Non-resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch