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:
Whether increases in the book value of depreciable assets for the purchase price excess over the book value of assets (up to their fair market value) where an amalgamation takes place, as sanctioned by the CICA Handbook, are reserves for LCT purposes.
Position:
Generally not.
Reasons:
Position taken in prior file E901059 to wind-up. Amount is similar to depreciation/goodwill.
953215
XXXXXXXXXX Michael Cooke
Attention: XXXXXXXXXX
January 12, 1996
Dear Sirs:
Re: Large Corporation Tax ("LCT")
This is in reply to your letter dated December 1, 1995, wherein you requested our views on the application of LCT where a corporation acquires the shares of another corporation (the "target") and on the subsequent amalgamation of the two corporations the book value of the target corporation's depreciable assets are increased in accordance with generally accepted accounting principles (GAAP).
It is your view that the amortization of the depreciable asset increase, being similar to depreciation, is not considered to be a reserve, within the meaning of subsection 181(1) of the Act.
It is our understanding that where such an asset increase is allowed by GAAP the retained earnings of the amalgamated company will be reduced over time as this increase is amortized. On the assumption that the offsetting credit is made against the account recording the investment (ie: the accounting entry is debit assets and credit investment in target) it is our general view that the restatement of the depreciable assets of the target corporation does not, in itself, create a reserve for the purposes of subsection 181.2(3) of the Act.
While we trust the foregoing comments are useful they are given in accordance with the practice referred to in paragraph 21 of IC 70-6R and are not binding on the Department.
Yours truly,
F. Lee Workman
Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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