9 June 1999 External T.I. 9820415 - MERGER OF EXEMPT INSURERS

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:

1. Whether section 87 applies to a merger of two insurers that are partially exempt from Part I tax under paragraph 149(1)(t).

2. If section 87 is not applicable, what are the income tax implications of such a merger?

Position:

1. No.

2. We are unable to provide specific comments on the income tax implications of a non-qualifying amalgamation in a general letter of opinion as we have not yet done a detailed review of the subject.

Reasons:

1. In our view, insurers that are fully or partially exempt under paragraph 149(1)(t) are not “taxable Canadian corporations” as defined in subsection 89(1).  Since subsection 87(1) requires that the merging corporations be taxable Canadian corporations immediately before the merger, subsection 87(1) appears not to apply to a merger of such insurers.
2. See above.
XXXXXXXXXX 								982041
J. Leigh
Attention:  XXXXXXXXXX 

June 9, 1999

Dear Sir:

Re: Amalgamation of Farmers’ and Fishermen’s Insurers

This is in reply to your letter dated August 5, 1998 wherein you asked several questions relating to the income tax implications of an amalgamation of two or more mutual corporations that are partially exempt from Part I tax by virtue of paragraph 149(1)(t) and subsection 149(4.1) of the Income Tax Act (the “Act”).

Your first question is whether section 87 of the Act applies to a merger of partially exempt farmers’ and fishermen’s insurers. As noted in your letter, it is our view that an insurer that qualifies for a full or partial exemption under paragraph 149(1)(t) of the Act is not a “taxable Canadian corporation” as defined in subsection 89(1) of the Act since it is exempt from tax under Part I by virtue of a statutory provision. Therefore, when two such insurers amalgamate, subsection 87(1) of the Act appears not to apply to the amalgamation given that subsection 87(1) of the Act requires the merging corporations to be taxable Canadian corporations immediately before the merger.

With regard to your remaining questions, to our knowledge, a merger of two corporations where either or both are not taxable Canadian corporations has not yet been the subject of a detailed review by this Directorate. Accordingly, the full income tax implications of such a merger are somewhat uncertain at this time, particularly with regard to the tax accounts of the predecessor corporations. While it is beyond the scope of a general opinion request for us to attempt to resolve this issue, we would be prepared to do so by way of an advance income tax ruling. Should you wish to proceed with a request for an advance income tax ruling with respect to a proposed merger, it should be submitted in the manner set out in Information Circular 70-6R3 dated December 30, 1996. If your situation concerns a completed transaction, you should contact the appropriate tax services office and provide them with all of the relevant information.

Nevertheless, it appears to us that it is unintended that the merger of two corporations to which paragraph 149(1)(t) of the Act applies would not be subject to the provisions of section 87 and accordingly we have referred this situation to the Department of Finance for their consideration.

We trust that these comments will be of assistance.

Yours truly,

Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate