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S4-F7-C1, Amalgamations of Canadian Corporations
The purpose of this Chapter History page is to highlight any amendments to the information contained in an interpretation bulletin that is now reflected in a chapter of an income tax folio as well as to identify any subsequent amendments to a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).
Update March 24, 2017
Paragraph 1.100 of this Chapter is revised to refer to and reflect the publication of Income Tax Folio S3-F2-C1, Capital Dividends, which replaced and cancelled Interpretation Bulletin IT-66R6, Capital Dividends.
Update November 26, 2015
Minor changes have been made to improve the usability of the income tax folios:
- the Summary section has been moved to the top of each folio chapter to be more immediately visible and helpful to readers;
- the Application and Reference sections have been moved to the end of the Chapter which is more appropriate for administrative content of this nature. However, these sections now appear in the Table of contents for easy access;
- the statement that folios are only available in electronic format has been moved to the end of the Application section; and
- the words “as promulgated under the Act” in connection with the Income Tax Regulations have been removed from the Application section, in the interest of using plain language.
Update May 8, 2015
¶1.60 is revised to refer to and reflect the publication of Income Tax Folio S3-F6-C1, Interest Deductibility, which replaced and cancelled Interpretation Bulletin IT-533, Interest Deductibility and Related Issues.
¶1.77 is revised to add a reference to paragraph (n) of the term disposition in subsection 248(1) (as added by S.C. 2013, c. 34, s. 358(12)) which states that, among other things, shares of a predecessor corporation held by another corporation that are cancelled on an amalgamation will not generally be considered to have been disposed of as a result of the amalgamation.
Update November 28, 2014
Income Tax Folio S4-F7-C1, Amalgamations of Canadian Corporations, replaces and cancels Interpretation Bulletin IT–474R2, Amalgamations of Canadian Corporations.
In addition to consolidating the content of the former interpretation bulletin, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information outlined in the former interpretation bulletin are described below. Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended, and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended and as promulgated under the Income Tax Act.
Legislative and other changes
¶1.3 (formerly addressed in paragraph 4 of IT-474R2) has been revised to reflect bijuralism.
¶1.4 was added to address the decision in Envision Credit Union v. The Queen, 2013 SCC 48, 2013 DTC 5144 (SCC). The Supreme Court of Canada held that it was not possible for the predecessors to structure an amalgamation that did not meet the condition in 87(1)(a) because the governing statute stipulated that on an amalgamation the amalgamated company “is seized of and holds and possesses all the property, rights and interests” of the predecessors.
¶1.5 (formerly addressed in ¶5 of IT-474R2) has been expanded to summarize the CRA's position regarding the exercise of statutory rights of dissent on an amalgamation.
¶1.9 (formerly addressed in ¶7 of IT-474R2) has been revised to provide additional clarity.
¶1.13 (formerly addressed in ¶13 of IT-474R2) has been revised to reflect the Federal Court of Appeal decision in CGU Holdings Canada Ltd. v. The Queen, 2009 DTC 5044 (FCA) which extended the decision in The Queen v. Pan Ocean Oil Ltd., 94 DTC 6412 (FCA); rev'g. 93 DTC 5330 (FCTD), such that paragraph 87(2)(a) also applied for the purpose of Division F of the Act.
¶1.16 was added to address the CRA's position regarding the timing of an amalgamation.
¶1.19 (formerly addressed in ¶11 of IT-474R2) has been revised to reflect the CRA's position regarding whether an acquisition of control of a target corporation and a subsequent amalgamation of the target corporation triggers one or two deemed year-ends for the target corporation.
¶1.20 was added to address the CRA's position that where a corporation amalgamates with a target corporation in the form of a horizontal amalgamation such that the former shareholders of the corporation acquire control of the new corporation, the target corporation has two deemed year-ends.
¶1.23 was added to illustrate that, absent a specific provision to the contrary, a particular tax attribute of a predecessor corporation does not flow through to the new corporation on a qualifying amalgamation.
¶1.24 was added to address the CRA’s long-standing position regarding the Canadian income tax treatment of non-qualifying amalgamations.
¶1.26 has been revised to include additional comments relating to the cost of the inventory to the new corporation.
¶1.29 and 1.30 were added to address the CRA's position regarding the amount to be added to the undepreciated capital cost (UCC) of a prescribed class of the new corporation under clause 87(2)(d)(ii)(A).
¶1.33 (formerly addressed in ¶19 of IT-474R2) has been revised to reflect the CRA's position regarding the eligibility of a non-arm's-length transferee to claim accelerated capital cost allowance in respect of the property.
¶1.37 (formerly addressed in ¶22 of IT-474R2) has been revised to reflect an amendment to subparagraph 88(1)(d)(ii) (as amended by S.C. 2013, c.40, s.40(9)) and an addition of new provisions in subparagraph 88(1)(d)(ii.1) (as added by S.C. 2012, c.31, s.18(1)).
¶1.39 was added to address the CRA's position regarding late-filed designations under paragraph 88(1)(d).
¶1.40 was added to explain the circumstances where the CRA's position described in ¶1.39 would not be available.
¶1.43 (formerly addressed in ¶25 of IT-474R2) has been revised to reflect a bijural amendment to the preamble of subsection 98(3) (as amended by S.C. 2013, c.34, s.122(1)).
¶1.45 and 1.46 were added to provide a more detailed discussion of the non-application of subsections 49(3), (3.01), (3.1) and (4) to situations where an option issued by a predecessor corporation is exercised following an amalgamation.
¶1.47 (formerly addressed in ¶28 of IT-474R2) has been revised to include a reference to the loss carryback rule in subsection 87(2.11).
¶1.48 (formerly addressed in ¶29 of IT-474R2) has been revised to include an example of the application of the net capital loss and non-capital loss streaming rules in section 111 in the context of an amalgamation.
¶1.49(b)(ii) (formerly addressed in ¶29(b)(ii) of IT-474R2) has been revised to include an example of the application of clause 256(7)(b)(iii)(B).
¶1.55 was added to explain the flow-through of the resource expense pools to an amalgamation described in subsection 87(1.2).
¶1.56 was added to explain the treatment of the resource expense pools for an amalgamation that is not described in subsection 87(1.2).
¶1.57 and 1.58 were added to address the Federal Court of Appeal decision in The Queen v. Dow Chemical Canada Inc., 2008 DTC 6544 (FCA). That decision considered whether, because of paragraph 87(7)(d), subsection 78(1) applied to the amalgamated corporation in respect of unpaid interest on a debt that was inherited by the amalgamated corporation from a predecessor corporation.
¶1.59 was added to address the CRA's position regarding whether an amalgamated corporation will, for the purposes of subsections 40(10) and 40(11), be considered to have realized a gain that was deemed under paragraph 111(4)(e) and subsection 111(12) to have been realized by a predecessor corporation.
¶1.60 was added to address the CRA's position regarding the application of the tracing principle under paragraph 20(1)(c) to determine whether an amalgamated corporation would be entitled to deduct under paragraph 20(1)(c) interest paid or payable by the amalgamated corporation on money that was originally borrowed by a predecessor corporation.
¶1.62 was added to address the CRA's position regarding the ability of an amalgamated corporation to file, on behalf of a predecessor corporation, information returns and slips under various provisions of the Act.
¶1.65 (formerly addressed in ¶34 of IT-474R2) has been revised to reflect the CRA's position regarding the collection of a predecessor corporation's tax debts from the amalgamated corporation.
¶1.67 was added to address the CRA's position regarding whether subparagraph 8503(3)(a)(i) of the Regulations will apply following a qualifying amalgamation to include the period throughout which an employee of the new corporation was employed by a predecessor corporation.
¶1.68 (formerly addressed in ¶36 of IT-474R2) has been revised to clarify that a shareholder's exchange of shares of a predecessor corporation for shares of the amalgamated corporation constitutes a disposition for purposes of the Act.
¶1.69 (formerly addressed in ¶36 of IT-474R2) has been revised to include a reference to the circumstances where a share of a new corporation received by a non-resident on an amalgamation constitutes taxable Canadian property under subsection 87(4).
¶1.75 and 1.76 (formerly addressed in ¶40 of IT-474R2) have been revised to add a reference to similar gifting rules contained elsewhere in the Act and clarify that the 87(4) exception applies on a shareholder-by-shareholder basis. An example has been added in ¶1.76 to illustrate the 87(4) exception.
¶1.78 (formerly addressed in ¶41 of IT-474R2) has been revised to provide an explanation of why an amalgamation which complies with subsection 87(11) may trigger a capital gain for the parent.
¶1.79 (formerly addressed in ¶42 of IT-474R2) has been revised to change prescribed stock exchange to designated stock exchange as a result of the amendment to paragraph (d) of the definition of taxable Canadian property in subsection 248(1) by S.C. 2007, c.35, s.68(2)(q).
¶1.80 (formerly addressed in ¶43 of IT-474R2) has been revised to reflect an amendment to the post-amble of subsection 87(5) that was implemented by S.C. 2010, c. 12, s.8(2) to add a time limit to the deemed taxable Canadian property rule.
¶1.82 (formerly addressed in ¶45 of IT-474R2) has been revised to reflect an amendment to the post-amble of subsection 87(4) that was implemented by S.C. 2010, c. 12, s.8(1) which deems the new shares to be taxable Canadian property to the shareholder for 60 months following the amalgamation.
¶1.83 was added to address the CRA's position regarding whether shares of the parent received by a non-resident shareholder of a predecessor corporation on a triangular amalgamation will represent taxable Canadian property of the non-resident shareholder.
¶1.85 (formerly addressed in ¶46 of IT-474R2) has been revised to clarify how subsection 87(3) would apply to the example described in this paragraph.
¶1.87 (formerly addressed in ¶47 of IT-474R2) has been expanded to address the Supreme Court of Canada decision in Copthorne Holdings Ltd. v. The Queen, 2012 DTC 5007 (SCC), regarding the application of the general anti-avoidance rule to a series of transactions involving a short-form horizontal amalgamation.
¶1.92 (formerly addressed in ¶51 of IT-474R2) has been revised to clarify that subsection 80.01(3) may also apply to a non-qualifying amalgamation.
¶1.94 was added to address the CRA's position regarding whether accrued foreign exchange gains or losses on a foreign currency denominated debt that is deemed to be settled on an amalgamation under subsection 80.01(3) will be realized as a consequence of the amalgamation.
¶1.95 (formerly addressed in ¶52 - 53 of IT-474R2) has been amended to remove the content of former ¶53 which discussed non-resident creditors. This discussion was removed to reflect the repeal of subparagraph 212(1)(b)(vii) effective in 2008.
¶1.97 (formerly addressed in ¶55 of IT-474R2) was amended to refer to the three-year time frame applicable in reference to a subsequent disposition of property, as specified in subsection 69(11).
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