Section 22

Subsection 22(1) - Sale of accounts receivable

See Also

Office Overload Co. Ltd. v. MNR, 65 DTC 690 (TAB)

not applicable where non-resident vendor

The election under s. 85D(1) of the pre-1972 Act was not available for accounts receivable included in a business purchased by the taxpayer from a non-resident vendor who did not carry on business in Canada given that the vendor accounted for accounts receivable on a cash basis and because the provision did not apply to a vendor who is a non-resident of Canada and is not doing business in Canada. Mr. Davis stated (at p. 697):

"... the section taken as a whole, which, in my opinion, is the way in which it must be interpreted, is intended to apply to persons who fall to be taxed or otherwise dealt with under the provisions of the Canadian Income Tax Act and who report to the Canadian Government the income arising from the operation of the business or businesses whose sale is the central concern of the said section 85D. That section is, in my opinion, intended to afford a continuity in the treatment of accounts receivable where the sale of a business intervenes ... ."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Person "person" not to be intepreted as extending to someone not subject to Cdn tax 118

Administrative Policy

S4-F7-C1 - Amalgamations of Canadian Corporations

Amalco can make s. 22 election (if no business interruption)

1.62.1 Where a new corporation that was formed on an amalgamation that was governed by section 87 sells to a purchaser all or substantially all the property that was used by a predecessor corporation in carrying on its business, including debts that had been previously included in the predecessor corporation’s income and which are still outstanding at the time of the sale, an election under section 22 by the new corporation will be accepted as valid. This will be the case even though the requirement in section 22 that the debts must have been, or would be, included in the new corporation’s income will not have been met. The acceptance of the election in these circumstances will be conditional on all other requirements of section 22 being satisfied and on there being no disruption in the operation of the business during the period from the time of the amalgamation to form the new corporation until the time the business is sold to the purchaser.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 100 - Subsection 100(2.1) s. 100(2.1) applies to non-qualifying amalgamation 64
Tax Topics - Income Tax Act - Section 111 - Subsection 111(12) application following amalgamation 113
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1) deemed tcp following amalgamation 167
Tax Topics - Income Tax Act - Section 13 - Subsection 13(5.1) continuity of s. 13(5.1) on amalgamation 132
Tax Topics - Income Tax Act - Section 165 - Subsection 165(1) Amalco can continue objection and receive refunds 157
Tax Topics - Income Tax Act - Section 169 Amalco can continue objection 103
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(n) reserve after amalgamation 62
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Shareholder shareholder need not hold shares 88
Tax Topics - Income Tax Act - Section 251 - Subsection 251(3.1) deemed non-arm's length relationship on amalgamation 172
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(b) related party, majority and 50% group exceptions 495
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(iii) reserve after amalgamation 62
Tax Topics - Income Tax Act - Section 66.7 - Subsection 66.7(7) successoring where non-wholly owned amalgamation 109
Tax Topics - Income Tax Act - Section 69 - Subsection 69(13) no disposition of predecessor property on general principles 113
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.4) s. 87(5) not applicable 112
Tax Topics - Income Tax Act - Section 80.01 - Subsection 80.01(3) non-87 amalgamation/no FX gain 165
Tax Topics - Income Tax Act - Section 84 - Subsection 84(3) no deemed dividend to dissenter on amalgamation 87
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) election filing by Amalco 109
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1.1) s. 87(1.1) qualifies for all s. 87 purposes 66
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1.2) successoring where non-wholly owned amalgamation 109
Tax Topics - Income Tax Act - Section 87 - Subsection 87(10) deemed listing of temporary Amalco shares 120
Tax Topics - Income Tax Act - Section 87 - Subsection 87(11) gain if high PUC is sub shares 55
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1) presumptive satisfaction of s. 87(1)(a)/dissent and squeeze-outs onside 297
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(a) new corp/deemed year end coinciding or not with acquisition of control 758
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(b) Amalco must follow predecessor's valuation method subject to truer picture doctrine 64
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(c) reserve after amalgamation 113
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(d) cost amount carryover 149
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(e.1) s. 100(2.1) applies to non-qualifying amalgamation 64
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(o) no continuity rule for non-security options 139
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(q) pre-amalgamation services 106
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2.11) loss-carry back to parent 169
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2.1) dovetailing with s. 88(1.1) 44
Tax Topics - Income Tax Act - Section 87 - Subsection 87(3.1) 346
Tax Topics - Income Tax Act - Section 87 - Subsection 87(3) PUC shifts 189
Tax Topics - Income Tax Act - Section 87 - Subsection 87(4) fractional share cash/ACB or value shift/implied non-recognition for predecessor shares 281
Tax Topics - Income Tax Act - Section 87 - Subsection 87(7) dovetailing with s. 78 and 112(12) 191
Tax Topics - Income Tax Act - Section 87 - Subsection 87(9) allocation of s. 87(9)(c)(ii) excess as parent chooses 230
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(d) late designation 122
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1.1) dovetailing with s. 87(2.1) 62
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5) partnership dissolution on amalgamation 137
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) deemed non-arm's length relationship on amalgamation 467
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2) deemed non-arm's length relationship on amalgamation 371
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(14) class continuity on non-arm's length amalgamation 327
Tax Topics - Income Tax Regulations - Regulation 8503 - Subsection 8503(3) - Paragraph 8503(3)(b) pre-amalgamation services 106
Tax Topics - Income Tax Act - Section 249 - Subsection 249(3) 136

24 October 2017 Internal T.I. 2017-0719531I7 - Section 22 election and carrying on a business

s. 22 election was available to an Amalco despite its receivables not being deemed to have been includible in its income

Following the amalgamation of “Predecessor 1” (which carried on the “Businesses”) with its parent (“Predecessor 2”), Amalco transferred all the assets of the Businesses to the “Partnerships” under s. 97(2), which continued to carry on the Business. Was the election under s. 22 respecting the transferred accounts receivable valid? In finding that the condition in s. 22, that there still be outstanding accounts receivable that were required to be included in computing Amalco’s income in respect of that business, appeared to not be met, CRA stated:

The only inclusion in income [of] Amalco … in respect of accounts receivable of Predecessor 1 is under 12(1)(d) and it includes in its income a reserve (there is no presumption that the underlying receivable was included by Amalco in its income).

Respecting the requirement that Amalco have carried on the Business, the Directorate stated:

[Y]ou express the view that because Amalco sold the assets used in the Businesses … minutes after the amalgamation, it did not “carry on the business” of Predecessor 1, hence the election under section 22 was not valid. … That view might arguably be consistent with … Gillen… .

However, the Directorate concluded that the election was satisfied (on the basis that the other conditions of s. 22 were satisfied and the business was continued) stating:

Provided there is no disruption in the continued operation of the business … the context and purpose of section 22 are satisfied where a corporation resulting from an amalgamation that is governed by section 87 or its predecessor have included receivables from that business in their income and have used property in carrying on that business.

Paragraphs 87(2)(g) and (h) provide a continuity in the history of the accounts receivable of the subsidiary predecessor corporation and ensures a seamless transition of the reserves mechanism by providing the same income inclusions and deductions on a consolidated basis as if Predecessor 1 had continued its existence in Amalco. …[R]efusing a section 22 election from being made at any time after an amalgamation runs against the legislative scheme of section 87.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(g) failure of s. 87()2)(g) to deem continuity for s. 22 purposes not fatal 117

12 February 2015 External T.I. 2014-0560491E5 F - Article 22

election not restricted to Canadian business

Would a Canadian corporation which has carried on a business through a non-resident branch and which then sells all or substantially all of the assets of the business including trade receivables be able to make the s. 22 election? After referring to the statement in IT-188R (Archived), para. 1, that "section 22 is applicable upon election by a vendor and a purchaser, where the vendor…sells all or substantially all of the assets of a business that was carried on in Canada to the purchaser who proposes to continue the business," CRA responded (TaxInterpretations translation):

The commentary in paragraph 1…is not restricted only to the situation where a business is carried on in Canada. Consequently, there are other situations where the election contemplated by section 22 could be made.

27 November 2011 CTF Annual Roundtable Q. 15, 2011-0426271C6 - Subsection 96(3) election

If the conditions in s. 96(3)(a) are met, then the s. 22 election is deemed by paragraph 96(3)(b) to have been made or executed by each other member of the partnership.

22 March 2006 External T.I. 2006-0168491E5 F - Vente de compte-clients et d'achalandage

capital loss treatment if a s. 22 election is not made

Regarding the consequences of the sale of a business of a financial securities advisor who provided life insurance policies and other products to clients, CRA stated:

If the vendor and the purchaser jointly elect under subsection 22(1):

  • the vendor can deduct the difference between the face value of the receivables sold and the consideration the vendor receives from the purchaser in computing the vendor’s income,
  • The purchaser must include this difference in its income and will be able to treat the receivables as if they had arisen while the purchaser owned the business. In this way, the purchaser will be able to deduct amounts in respect of bad and doubtful debts.

If an election under subsection 22(1) is not filed, the sale of the receivables will be recognized as a sale of capital property, so that the vendor's losses, and subsequently the purchaser's, will be capital losses.

13 July 1994 External T.I. 9410205 - LOANS NOT ACQUIRED IN THE ORDINARY COURSE...

An election under s. 22 is not available where parts of a business or assets of a business are acquired by a number of purchasers.

The deeming rule in s. 22(1)(c) applies to permit a reserve under s. 20(1)(l) for debts arising from loans that were not acquired by the purchaser in the ordinary course of the money-lending business of the purchaser.

17 September 1992 T.I. (Tax Window, No. 24, p. 4, ¶2195)

A taxpayer cannot elect under both ss.85(1) and 22 with respect to accounts receivable.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) 15

31 August 1992 T.I. 921342 (April 1993 Access Letter, p. 136 ¶C20-1142)

A privately-appointed receiver-manager would be considered to transfer property to a purchaser on behalf of the debtor. Accordingly, it is the debtor who should sign the election. Authority of the receiver-manager to dispose of the debtor's property would not be sufficient authority to file income tax elections with respect to such dispositions.

30 November 1991 Round Table (4M0462), Q. 14.3 - Sale of Debts (C.T.O. September 1994)

In considering a situation where a corporation had two divisions, one of which did printing and the other which did photo typesetting, and all the assets of the first division were sold to another corporation which continued the operation in the same manner and under the same name, RC stated that "the fact that the corporation that has acquired the assets used in the printing division can be considered to be carrying on a separate business does not mean that the vendor corporation was operating its two divisions in the form of two separate businesses."

IT-188R Archived "Sale of Accounts Receivable" 22 May 1984

1. Section 22 is applicable upon election by a vendor and a purchaser, where the vendor (individual, partnership, corporation or estate) sells all or substantially all of the assets of a business that was carried on in Canada to the purchaser who proposes to continue the business. All or substantially all is considered to be at least 90% of the property used in carrying on the business. The business assets sold must include all the accounts receivable of the vendor that are outstanding at the time of the sale. "Accounts receivable" includes the debts arising from loans made in the ordinary course of the business if part of the business was the lending of money.

IT-206R "Separate Businesses"

General discussion of what constitutes a separate business.

Forms

T2022 "Election in Respect of the Sale of Debts Receivable"

If the vendor or the purchaser is a partnership, a designated partner must sign the election.