9 December 1991 External T.I. 9122455 F - Vertical Short Form Amalgamation

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.

912245 24(1)                                

Dear Sirs:

Re:  Section 110.6 of the Income Tax Act (the "Act")

This is in reply to your letter dated August 12, 1991 in which you requested our views concerning the effects of a vertical short-form amalgamation, to which the provisions of subsection 87(1.1) of the Act apply, on the application of the 24 month holding period requirement contained in paragraph (b) of the definition of "qualified small business corporation share" ("QSBC Share") in subsection 110.6(1) of the Act.

Vertical short-form amalgamations are governed by the applicable corporate law.  For example, subparagraph 184(1)(b)(iii) of the Canada Business Corporations Act ("CBCA") states that on a vertical short-form amalgamation "no securities shall be issued by the amalgamated corporation in connection with the amalgamation".

It is our view that following a vertical short-form amalgamation the phrase "a share of the capital stock of a corporation" in the preamble to the definition of QSBC Share refers to the share of the amalgamated corporation. In addition, it is our view that, based on the corporate law requirement that no new shares be issued by the amalgamated corporation, that the share of the amalgamated corporation owned by the shareholder after the amalgamation is the same share as the share of the predecessor corporation owned by the shareholder prior to the amalgamation.  On this basis, and for the purposes of paragraph (b) of the definition of QSBC, where a particular person is the only owner of a share of a predecessor corporation for a specified period immediately prior to a short-form amalgamation, and the share remains outstanding and owned by the particular person after the amalgamation, the particular person will be considered to have owned the share of the amalgamated corporation for the specified period and the period of time the share was held after the amalgamation.

As no shares of the capital stock of the amalgamated corporation are issued by virtue of the merger, subparagraph 110.6(14)(f)(i) of the Act is not relevant for the purposes of the definition of QSBC Share with respect to vertical short-form amalgamations.

Most provincial legislation governing business corporations contains almost identical provisions to the CBCA with respect to vertical short-form amalgamations.  However, if the applicable corporate law considers shares of the capital stock of the amalgamated corporation to be issued by virtue of the merger, it is our view, that subparagraph 110.6(14)(f)(i) of the Act would be applicable.

These comments represent our general views with respect to the subject matter of your letter.  The facts of a particular situation may result in a different result.  The foregoing comments are not rulings and, in accordance with the guidelines set out in Information Circular IC 70-6R2 dated September 28, 1990, are not binding on the Department.

Yours truly,

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch