22 November 1996 External T.I. 9628845 - REVIVAL OF A DISSOLVED CORPORATION-IMPACT ON LOSSES

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 losses of a dissolved corporation are available if the corporation is revived; whether dissolution results in the termination of a taxation year and subsequent revival results in the commencement of a new taxation year- all questions in the context of the OBCA.

Position:

Revival under the OBCA has a retroactive effect, therefore losses are restored and are available for use if control has not been acquired. Any income earned in the period of dissolution would reduce the balance of losses carried forward. If revived, since OBCA is retroactive, the taxation year did not end on dissolution, nor does a new taxation year commence on revival.

Reasons:

Income Tax Act is silent on revival, so it's based on our best interpretation of the corporate law. Note that our response will be different in a jurisdiction where revival of a dissolved corporation does not have a retroactive effect.

									962884
XXXXXXXXXX							V. Plant

Attention: XXXXXXXXXX

November 22, 1996

Dear Sirs:

Re: Revival of a dissolved corporation

This is in reply to your letter of August 23, 1996 in which you requested our opinion on the following issue. A corporation incorporated under the Ontario Business Corporations Act (the "OBCA") is involuntarily dissolved for failing to file the special notice required under the OBCA. At the time of its dissolution the corporation has no assets but has significant non-capital losses available to be carried forward.

The corporation is revived 18 months after its dissolution pursuant to subsection 241(5) of the OBCA, which provides that upon revival the corporation "is restored to its legal position, including all its property, rights and privileges and franchises, and is subject to all its liabilities, contracts, disabilities and debts, as of the date of its dissolution, in the same manner and to the same extent as if it had not been dissolved."

Based on the above, you would like to know whether non-capital losses are restored upon revival and can be utilized by the revived corporation in accordance with the provisions of section 111 of the Income Tax Act (Canada) (the "Act"). In addition, you would like to know whether the dissolution of the corporation results in the termination of the taxation year of the corporation in which it is dissolved and whether its revival results in the commencement of a new taxation year.

Our comments

It appears that the interpretation you seek relates to a proposed transaction to be 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 question of fact, the Department will not rule unless all of the relevant facts are known. Nevertheless, we can offer the following general comments.

There is no provision in the Act dealing with the revival of a corporation, so the consequences will be determined by the applicable corporate law. Given the wording of the OBCA that the corporation is restored to its legal position as of the date of its dissolution, in the same manner and to the same extent as if it had not been dissolved, then revival under the OBCA would appear to have a retroactive effect and the revived corporation would be the same legal entity as the dissolved corporation. We therefore believe that in a jurisdiction such as Ontario, the non-capital loss account would be restored upon revival and would be available for use in accordance with the provisions of section 111 of the Act. Consequently, where the revived corporation has no assets, such losses will not be available where there has been an acquisition of control.

We are also of the opinion that in those jurisdictions where revival has a retroactive effect, the revival of the dissolved corporation will not result in the commencement of a new taxation year, nor will the dissolution (where the corporation is subsequently revived) result in the termination of the taxation year of the corporation. However, any taxation years which have occurred during the period of dissolution will have to be included in determining the availability of any losses carried forward.

For more comments on the involuntary dissolution of corporations, we refer you to Interpretation Bulletin IT-444R, "Corporations-Involuntary Dissolutions".

We trust our comments will be of assistance to you.

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch