8 September 1995 Internal T.I. 9516536 - ITC 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.

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:

For purposes of applying 127(10.1) of the Act, must one apply 87(2)(oo) of the Act to an amalgamated corporation ("ACO.") when ACO is in its 2nd taxation year?

Position TAKEN:

No

Reasons FOR POSITION TAKEN:

Paragraph 87(2)(oo) of the Act is intended to deal with a situation where the amalgamated corporation is in its first taxation year and accordingly requires a deemed taxation year in the prior year since in it does not have one. In addition, if paragraph 87(2)(oo) of the Act was applied to the scenario described above, there is a possibility that double counting could occur which would be unequitable and must be avoided.

		September 8, 1995

M. Clement Merchandising, Manufacturing
A/Director and Partnerships Section
Specialized Compliance Franklyn S. Gillman
Enhancement Division
Audit Directorate

Attention: Mara Praulins
7-951653

Paragraph 87(2)(oo) of the Income Tax Act (the "Act")

This is in reply to your memorandum of June 20, 1995 wherein you requested our opinion regarding the application of paragraph 87(2)(oo) of the Act and subsection 127(10.1) of the Act.

The particular scenario you described deals with a corporation trying to obtain the enhanced investment tax credit ("ITC") rate pursuant to subsection 127(10.1) of the Act for it's 1992 taxation year where the associated corporation referred to in subsection 127(10.1) of the Act is made up of two corporations which were amalgamated in 1991 and had it's first taxation year (less than 12 months) ending on December 31, 1991.

It is our opinion that for purposes of applying subsection 127(10.1) of the Act to the situation referred to above, one need not refer to paragraph 87(2)(oo) of the Act to determine the taxable income and business limit of the associated amalgamated corporation. One should refer to the associated amalgamated corporation's taxation year ending on December 31, 1991 in order to determine the taxable income and business limit required to be included in the calculation under subsection 127(10.1) of the Act.

Paragraph 87(2)(oo) of the Act is intended to deal with a situation where the associated amalgamated corporation is in its first taxation year and for purposes of subsection 127(10.1) of the Act requires the use of the prior year's taxable income and business limit of the predecessor corporations.

However, if the purpose of the amalgamation was to specifically create a short taxation year thereby producing a minimal amount of taxable income and a low business limit in order to obtain the enhanced ITC rate, subsection 245(2) of the Act would have to be considered.

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Policy and Legislation Branch