14 January 1999 External T.I. 9818955 - INVOLUNTARY DISSOLUTION

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.

XXXXXXXXXX 		981895
D. Boychuk
Attention:  XXXXXXXXXX 

January 14, 1999

Dear Sir:

Re: Issues Arising from Involuntary Dissolution

We are writing in response to your letter of July 22, 1998 wherein you requested our views on the application of the Income Tax Act (the “Act”) to the situation described below.

A corporation, Bco incurred non-capital losses from carrying on business. Bco subsequently ceased to carry on its business and was involuntarily dissolved pursuant to the Ontario Business Corporations Act (the “OBCA”). Bco is subsequently revived pursuant to section 241 of the OBCA. Bco commences to carry on business and earns taxable income.

Issues

Based on the foregoing facts, you have asked us:

1. What, if anything, happens to Bco’s non-capital losses as a consequence of its involuntary dissolution?

2. If Bco’s non-capital losses remain intact, can such losses be carried forward and utilized against Bco’s income subsequent to its revival?

3. Can a revived corporation, such as Bco, elect to have a new taxation year?

Our Comments

In your letter, you have outlined what appears to be an actual fact situation related to transactions and events which have taken place. The review of such situations is generally the responsibility of the local taxation services offices and, as outlined in paragraph 22 of Information Circular 70-6R3, it is not our practice to provide specific opinions on factual situations otherwise than in the context of an advance income tax ruling. In any event, a request for an advance income tax ruling cannot be considered where the transactions are completed or where the issues involved are primarily questions of fact. Nevertheless, we are prepared to provide the following comments which we hope will be of assistance to you.

1. The effect of an involuntary dissolution for tax purposes will depend upon the law of the jurisdiction governing the dissolution. Generally speaking, under section 241 of the OBCA, a corporation which has been involuntarily dissolved may be revived on the application of an interested person. The effect of the revival is to restore the corporation to its legal position, including all its property, rights and privileges and subject to all the obligations of the corporation as of the date of its dissolution “in the same manner and to the same extent as if it had not been dissolved.” In these circumstances, the Department does not consider the revived corporation to be a new corporation or to have had a taxation year end at the time of dissolution. As a result, where a corporation has been involuntarily dissolved and later revived under the OBCA, any non-capital losses incurred by the corporation prior to dissolution will continue to be non-capital losses of the revived corporation.

2. The non-capital losses incurred in Year 1 may be carried forward in accordance with paragraph 111(1)(a), subject to any restrictions on the use of such losses in the event of an acquisition of control. Any taxation years which occur during the period of dissolution will be relevant in determining the carryforward period.

3. Where the revival of a corporation retroactively cures the dissolution, such as under the OBCA, the revived corporation would continue to have the same taxation year. That is, the dissolution of the corporation does not result in the termination of the corporation’s taxation year nor does the revival of the corporation result in the commencement of a new taxation year. Accordingly, no change in the fiscal period of the revived corporation may be made without the concurrence of the Minister as required by subsection 249.1(7).

We trust that our comments will be of assistance.

The above comments represent our general views with respect to the subject matter of your letter and are provided in accordance with paragraph 22 of Information Circular 70-6R3.

Yours truly,

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