1 December 1998 External T.I. E9829525 - UTILIZATION OF SUBSIDIARY'S 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: Utilization of a subsidiary's losses

Position: loss realized by subsidiary deemed to be loss of the parent for the taxation year of the parent in which subsidiary's loss year ended. Revised previous opinion #964228.

Reasons: Short fiscal period did not restrict the loss available to parent to the year 2002.

Tax Executives Institute Liaison Meeting - December 1, 1998

Question # XVI

LOSSES OF A SUBSIDIARY ON WIND-UP

A. The following question is based on Revenue Canada's letter dated December 12, 1997, as reported in CCH's Window on Canadian Tax Commentary (No. 9642285). Based on the facts summarized in the table below, please explain the basis for Revenue Canada's position that the final Subco loss incurred up to June 29, 1996 expires in Parentco's 2002 year end as opposed to 2003.

              	 Subco's Year End   Year of Expiry    Year of Expiry
                    		           for Subco         for Parentco  

Year 1 20/03/94 29/06/00* 30/06/00
Year 2 20/03/95 29/06/01* 30/06/01
Year 3 20/03/96 29/06/02* 30/06/02
Year 4 29/06/96 29/06/03* 30/06/03

* Assumed to be the same month and day as the last year end triggered by dissolution of Subco.

B. Assume that on June 19, 1996, the winding-up of Subco is commenced, that it has ceased all operations, that all its assets and liabilities have been transferred to Parentco but that it was not dissolved. Does Revenue Canada agree that Subco's losses will expire in Parentco according to the schedule in the following table.

	         	     Subco's Year End   Year of Expiry    Year of Expiry
                    		               for Subco         for Parentco  

Year 1 20/03/94 20/03/01 30/06/01
Year 2 20/03/95 20/03/02 30/06/02
Year 3 20/03/96 20/03/03 30/06/03
Year 4 20/03/97* 20/03/04 30/06/04

* No year end is triggered on June 19, 1996 because Subco is not dissolved.

ANSWER

A. We have reconsidered our position set out in the letter referred to above and we now agree that the Subco loss incurred in its taxation year ended June 29, 1996 expires on Parentco's 2003 year end.

B. We agree that Subco's losses would expire in Parentco according to the schedule above provided that the requirements of subsection 88(1.1) are met. However, subsection 88(1.1) only applies to deem the subsidiary's losses to be the parent's losses where the subsidiary "has been wound up". The Department's position on the meaning of "winding-up" and when a corporation can be considered to have been "wound up" is expressed in Interpretation Bulletin IT-126R2. Paragraph 5 of that bulletin describes the situations where the Department will accept that a corporation is considered to have been wound up notwithstanding that the formal dissolution of the corporation is not complete. In the situation described above, Subco would not be considered to have been wound up until it is formally dissolved.

File 5-982952
J. Teixeira
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.../cont'd

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