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:
Where subsidiary has commenced a wind-up and has distributed all property to its parent but instead of disolving the company it amalgamates with its parent, will the amalco be entitled to a bump under proposed subsection 87(11).
Position:
No.
Reasons:
Since the property of Opco has been transferred to Holdco prior to the amalgamation, it will not be acquired by the amalgamated company "on the amalgamation" and will therefore not be eligible under proposed subsection 87(11).
XXXXXXXXXX 970100
Attention: XXXXXXXXXX
February 6, 1997
Dear Sirs:
Re: Proposed Subsection 87(11) of the Income Tax Act
We are writing in response to your letter of January 7, 1997 wherein you requested a technical interpretation with respect to the application of proposed subsection 87(11) of the Income Tax Act (the" Act") to the following situation:
1.Holdco and Opco are both taxable Canadian corporations. Opco is a subsidiary wholly-owned corporation of Holdco.
2.Prior to June 20, 1996, Holdco passed a resolution authorizing the wind-up of Opco under the relevant corporate statute. The adjusted cost base of Holdco's shares of Opco is such that it can take advantage of the bump allowed under paragraph 88(1)(d) of the Act.
3.Beneficial ownership of all of Opco's assets has been transferred to Holdco and Holdco has assumed all of Opco's liabilities.
4.Opco has not been legally dissolved.
You have indicated that in British Columbia, a wind-up can result in the imposition of both provincial sales tax and property (land) purchase tax so it is more beneficial to structure such transactions as a vertical amalgamation. Consequently, you propose that the legal steps to dissolve Opco will not be concluded and instead Opco and Holdco will enter into an agreement to amalgamate.
You have asked the following questions:
(a)whether the amalgamated company will be entitled to bump the cost of Opco's capital property under proposed subsection 87(11); and
(b)whether the transfer of the assets prior to the amalgamation will result in a shareholder appropriation under subsection 15(1). If so, can this be solved by filing a section 85 election in respect of the transfer.
The situation described in your letter would appear to involve an actual proposed transaction. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada, Customs, Excise and Taxation. However, we can offer the following comments.
A bump under proposed subsection 87(11) is only available in respect of certain capital property of the subsidiary which is "acquired on the amalgamation". Since the property of Opco has been transferred to Holdco prior to the amalgamation, it will not be acquired by the amalgamated company "on the amalgamation" and will therefore not be eligible under proposed subsection 87(11).
Since Opco has not been wound-up, the property of Opco has not been acquired by Holdco on the amalgamation and it appears that no consideration (other than the assumption of Opco's liabilities) has been paid by Holdco to acquire the property of Opco, we believe that such property has been distributed to, or otherwise appropriated by, Holdco for the purpose of subsection 84(2) of the Act. Since such appropriation is governed by subsection 84(2), subsection 15(1) should not be applicable. However, subsection 69(4) would be applicable in determining Opco's income for the year. We do not believe that an election under subsection 85(1) can be made to avoid this result since it is our understanding that no share consideration was given by Holdco to Opco at the time that Opco's assets were transferred to Holdco.
We trust that our comments will be of assistance.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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