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.
Question 32: Amalgamations and subsection 15(1)
Assume that an individual owns all of the shares of two corporations, one of which has accumulated losses that have been funded by loans from the individual shareholder, and the other of which has been profitable. The shareholder loan receivable by the individual from the "loss company" has little or no value. The corporations amalgamate so that the profitable operations can benefit from the losses that have been accumulated in the loss company. On the amalgamation, the shareholder loan owing to the individual by the loss company increases in value. This increase in value is offset by a corresponding decrease in the value of the shares of the amalgamated company.
(a) In such circumstances, will the Department apply subsection 15(1) to assess a benefit with respect to the shareholder loan becoming valuable as a consequence of the amalgamation ?
(b) Would the response be different if the shares of the profitable company were owned by a person related to the individual who owned the shares and shareholder loan in the loss company ?
Department's Position
(a) The Department would not ordinarily seek to apply subsection 15(1) in such circumstances.
(b) It is likely that paragraphs 87(4)(c) to (e) would apply in respect of the amalgamation in which case the Department would not seek to apply subsection 15(1).
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