26 October 2016 Internal T.I. 2016-0625041I7 - Eligible losses following vertical amalgamation

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.

Principal Issues: Whether a predecessor or subsidiary corporation’s eligible loss for Ontario Corporate Minimum Tax purposes can be carried over to its successor or parent corporation following a vertical amalgamation or wind-up completed after March 21, 2007.

Position: No, subject to the conditions in ss. 58(4.1) or ss. 58(5) of the Taxation Act, 2007.

Reasons: Where a vertical amalgamation to which subsection 87(1) of the ITA applies occurs after March 21, 2007, the carryover of a predecessor corporation’s eligible losses to the successor corporation for CMT purposes is not permitted under the Taxation Act, 2007, in certain circumstances. For winding-ups completed after March 21, 2007 that are subject to the rules in subsection 88(1) of the ITA, eligible losses of a subsidiary are not permitted to be carried-over for CMT purposes to its parent under the Taxation Act, 2007.

					October 26, 2016

Mary Wong				Lita Krantz
Large Case File Manager		Manager
Toronto Centre TSO		Deferred Income Plans, Section 44
1 Front Street West		Income Tax Rulings Directorate
Toronto ON  M5J 2X6		Legislative Policy Regulatory Affairs Branch

					2016-062504

Corporate Minimum Tax-Wind Up or Amalgamation after March 21, 2007

This is in response to your enquiry concerning whether subsection 58(4.1) and subsection 58(5) of the Ontario Taxation Act, 2007 (the “TA”) deny the carryover of eligible losses for Corporate Minimum Tax (“CMT”) purposes on a vertical amalgamation occurring, or a winding-up completed, after March 21, 2007. In particular, your question pertains to an amalgamation of a corporation with one or more corporations to which subsection 87(1) of the Income Tax Act (“ITA”) applies and a winding-up of a subsidiary corporation to which subsection 88(1) of the ITA applies.

Our Comments

If there has been an amalgamation of corporations to which the rules of section 87 of the ITA apply, subsection 58(4) of the TA deems the amalgamated corporation to be the same as and a continuation of each of the predecessor corporations for the purpose of determining the amalgamated corporation’s eligible losses for CMT purposes. Pursuant to subsection 26(1) of the TA “predecessor corporation” is defined to mean a corporation that is referred to as a predecessor corporation in section 87 of the ITA. Subsection 87(1) of the ITA refers to a predecessor corporation as a corporation that was immediately before the merger of two or more corporations a taxable Canadian corporation. Where an amalgamation occurs after March 21, 2007, subsection 58(4.1) of the TA denies the carryover of a predecessor corporation’s eligible losses if that predecessor corporation was controlled at any time before the amalgamation by any other predecessor corporation. Therefore, where an amalgamation of two or more corporations, each referred to as a predecessor corporation in section 87 of the ITA, occurs after March 21, 2007, the carryover of a particular predecessor corporation’s eligible losses to the amalgamated corporation is not permitted for purposes of CMT to the extent that the predecessor corporation was controlled at any time before the amalgamation by any other predecessor corporation.

If the rules in subsection 88(1) of the ITA apply to the winding-up of a subsidiary corporation that was completed before March 22, 2007, subsection 58(5) of the TA deems a parent corporation to be the same as and a continuation of the subsidiary corporation for purposes of determining the parent corporation’s eligible losses. Subsection 58(5) of the TA does not apply to a winding-up completed after March 21, 2007 and, as a consequence, eligible losses of a subsidiary are not permitted to be carried-over to its parent for purposes of the CMT.

For winding-ups completed or amalgamations occurring subsequent to March 21, 2007, a parent corporation or the amalgamated corporation, as applicable, will include in its adjusted net income or loss for CMT purposes the accounting loss, if any, on its investment in the subsidiary or predecessor corporation to the extent that it is reported in its financial statement income or loss prepared in accordance with Generally Accepted Accounting Principles.

We trust our comments will be of assistance.

Yours truly,

Lita Krantz CPA, CA
for Director,
Deferred Income Plans, Section II
Financial Industries and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch