6 April 1994 External T.I. 9402665 - CHOICE OF YEAR END AFTER 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.

Principal Issues:

-choice of year end after amalgamation

Position TAKEN:

-new year end not to exceed 53 weeks

Reasons FOR POSITION TAKEN:

-definition of fiscal period

XXXXXXXXXX 940266

Attention: XXXXXXXXXX

April 6, 1994

Dear Sirs:

Re: Choice of year end after amalgamation

This is in reply to your letter of January 26, 1994 in which you request our interpretation of paragraph 87(2)(a) of the Income Tax Act with respect to a specific situation. Unless otherwise stated all statutory references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act").

The situation is the following:

-A company ("C") normally has a floating year end ending on the Saturday closest to December 31 of each year;

-C amalgamates with another company to form ABC, effective midnight December 30, 1993, deeming a taxation year end on that date;

-ABC wishes to continue with a floating year end of the Saturday closest to December 31 of each year.

Your questions

1.If ABC chooses to have its next year end on the closest Saturday to December 31, will this be interpreted by the Department to be Saturday, December 31, 1994, or will the rules force ABC to have a year end on Saturday, January 1, 1994, and thus have ABC incur a 2 day fiscal period for tax purposes?

2.Alternatively, may ABC choose the December 30 year end and then subsequently (prior to December 30, 1994) request an extension of the first taxation year after the amalgamation, to December 31, 1994, being the closest Saturday to December 31, 1994 on the basis that this is ABC's operating and financial statement year end, this was the predecessor corporations's taxation year prior to the amalgamation and no undue tax advantages will be derived from extending the year end? If this extension is granted will ABC be able to continue on with the floating year end?

Our comments

It appears that the interpretation you seek relates to a completed transaction undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. Where, however, the issue to be considered involves a completed transaction, we refer you to your local District Taxation Office. Nevertheless, we can offer the following general comments.

We refer you to paragraph 9 of Interpretation Bulletin IT-474R, which discusses the effective date of amalgamation. In general, the taxation years of the predecessor corporations terminate "immediately before the amalgamation". Since it appears from your letter that the time of amalgamation is specified to be midnight, December 30, 1993, then the predecessor corporations would have a year end immediately before this time, being 11:59 p.m. December 30, 1994. The first taxation year of ABC would commence at midnight on December 30, 1994.

You have not indicated whether there is an acquisition of control occurring upon the amalgamation. Subsection 256(7) of the Act describes certain situations where control is deemed not to have been acquired, which may be relevant to your situation. If there has been an acquisition of control, subsection 256(9) of the Act deems control to have been acquired at the commencement of that day and not at the particular time of day unless the corporation elects as required by the subsection. Therefore, if there has been an acquisition of control upon the amalgamation and if no election is filed under subsection 256(9) of the Act, then control will be deemed to have been acquired at the earliest moment of December 30, 1993, and the predecessor corporations will have deemed year ends at midnight, December 29, 1993.

According to paragraph 87(2)(a) of the Act, the amalgamated corporation is deemed to be a new corporation whose first taxation year commences at the time of amalgamation. As a result, the amalgamated company is permitted to choose any period that ends not more than 53 weeks from the date of the amalgamation as its taxation year. We also refer you to the definition of fiscal period in subsection 248(1) of the Act, which defines it as the period for which the accounts of the business are ordinarily made up and accepted for assessment purposes. The amalgamated corporation could therefore adopt a floating year end which ends on the Saturday closest to December 31 of each year, and specify that, for greater certainty, its first fiscal period will end on Saturday December 31, 1994.

We hope you will find our comments helpful.

for the Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch