25 November 1992 Income Tax Severed Letter 9229590 - Post-butterfly 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                   Canadian Tax Foundation
                       November, 1992

Question #40: Paragraph 55(3)(b) - Impact of Guaranty Properties Ltd.

At the 1991 Annual Conference, T. Harris stated that, notwithstanding the Federal Court of Appeal's decision Ln Guaranty Properties Ltd. (application for leave to appeal to the Supreme Court of Canada dismissed January, 1991), Revenue Canada maintains the view that the transfer of property by a particular corporation to a wholly-owned subsidiary of a shareholder corporation followed by an amalgamation under subsection 87(1) of the shareholder corporation and wholly-owned subsidiary would not be an indirect transfer of property by the particular corporation to a transferee corporation that was a shareholder of the corporation immediately before the transfer because the corporation resulting from the amalgamation is deemed by paragraph 87(2)(a) to be a new corporation. The decision of the Federal Court of Appeal in Guaranty Properties Ltd. does not appear to support this view. The decision specifically states that nothing in paragraph 87(2)(a) indicates an intention on the part of Parliament to deem an amalgamating corporation to have ceased to exist. On this basis, it is difficult to understand why Revenue Canada continues to regard the amalgamated corporation in the circumstances described above as a new corporation which was not previously a shareholder of the particular corporation.

How does Revenue Canada reconcile its position with the Guaranty Properties Ltd. decision?

Department's Position

The conclusions to be drawn from the Federal Court of Appeal's decision in Guaranty Properties Ltd. are not completely clear. In fact, a decision is pending in a second situation which may clarify certain aspects of the decision in Guaranty Properties Ltd.

Even if Guaranty Properties Ltd. is considered to stand for the proposition that an amalgamating corporation in a section 87 amalgamation does not cease to exist, it is not clear that property held by the amalgamated corporation after the amalgamation, after having been transferred by the particular corporation to the wholly-owned subsidiary of the shareholder corporation, should be considered to be property indirectly received and held by the shareholder corporation. After the amalgamation, it may be true that the shareholder corporation is continued into the amalgamated corporation and does not cease to exist, but it then equally must be true that the wholly-owned subsidiary is continued into the amalgamated corporation and does not cease to exist. On this basis, it is difficult to argue that the property has been indirectly received and is held by the continued shareholder corporation but not the continued wholly-owned subsidiary.

0-922959 October 13, 1992 John Kutkevicius

Reference: Section 87