Subsection 249(1)
Cases
Katz Estate v. The Queen, 76 DTC 6377, [1976] CTC 633 (FCTD)
Addy, J. stated, obiter, that "where section 249 refers to an individual, it must be taken to refer to an individual who is alive and ... [a] deceased taxpayer's taxation year would end at the date of his death although it obviously would not be a twelve-month period."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) | 57 |
Administrative Policy
7 November 2012 External T.I. 2012-0468101E5 - Year End of Inter Vivos Trust on Wind Up
The taxation year of an inter vivo trust that has distributed all its property in the year to its beneficiary and, therefore, has effectively been wound-up in the year, is the calendar year. Accordingly the return filing deadline under Reg. 204(2) and s. 150(1)(c) is 90 days after the calendar year end. CRA stated:
We note that paragraph 104(23)(a) supports a conclusion that the tax year of a testamentary trust ends on the date of final distribution of its assets, however, the law does not support a similar conclusion in respect of an inter vivos trust.
17 July 2000 Internal T.I. 2000-0012557 - 75(20 on transfer of shares to trust...
"The taxation year of an inter vivos trust is December 31, regardless of when it is wound up....[T]he trust could not avoid the application of paragraph 94(1)(c) by winding up in that year."
20 February 1998 External T.I. 9714685 - NON-RESIDENT TRUST STRUCTURES
"It is our view that by virtue of subsection 104(2) and 249(1) of the Act, the last taxation year of an inter-vivos trust ends on December 31 of that year, even if the assets of the trust have been distributed at an earlier date."
94 C.P.T.J. - Q.22
"A predetermined agreement which sets out how the group is to act in certain situations would normally constitute acting in concert ... . Furthermore, in cases where the voting power in a corporation is equally divided between two shareholders, it is the Department's view that, in almost all such cases, the corporation will be controlled by the group consisting of the two shareholders."
4 October 89 Memorandum (March 1990 Access Letter, ¶1155)
The taxation year of a deceased taxpayer ends on the date of his death.
89 C.M.TC - Q.4
The RCT policy to permit a joint venture to establish its own fiscal period is intended to apply primarily to the situation where the participants in a joint venture have different fiscal periods, or the same fiscal period but valid business reasons for a different joint venture fiscal period.
The joint venture fiscal period will end at the time of disposition of all its property.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(9) | 46 |
88 C.R. - Q.79
An election pursuant to s. 195 of S.C. 1988, C.55 will be accepted if made in a late-filed return, but not if in an amended return.
Paragraph 249(1)(b)
Administrative Policy
15 June 2022 STEP Roundtable Q. 10, 2022-0929361C6 - Taxation Year-end of a GRE
When a trust is wound up, does its taxation year end at that time or does it continue until the time of its normal year-end (which for an inter vivos trust would be December 31 and the fiscal period end adopted for a graduated rate estate (GRE) within its first 36 months.
The Act is specific in certain provisions in deeming a year-end to arise (e.g. for alter ego, spousal and joint spousal trusts, a testamentary trust that ceases to be a GRE, and a trust becoming or ceasing to be resident in Canada), but is silent on this point in the general case.
The T3 Guide states that when a GRE winds up, a taxation year-end occurs on the date of the final distribution of its assets. What is the rationale for this?
CRA noted that s. 249(1)(b) defines the taxation year of a GRE to be the period for which the accounts of the estate are made up for purposes of assessment under the Act and that that paragraph, when combined with s. 249(5), causes the taxation year to cease when the period of accounts ends.
In the year of wind-up, the last period for which the accounts of the Trust would have been made up for a trust other than a GRE, would not be relevant to paragraph (c), which defines “taxation year,” in any other case, to be a calendar year. In the year of wind-up, the last period for which the accounts of the Trust would have been made up would presumably end on the final distribution of the trust property.
As for the other types of trust, s. 249(1)(c) applies to a trust other than a GRE. Paragraph (c) defines “taxation year,” in any other case, to be a calendar year.
3 January 2003 External T.I. 2002-0141745 F - Terminaison d'une Fiducie testamentaire
Does a testamentary trust cease to exist when it has converted its assets (e.g., immovables) into liquid assets, and does it have a maximum lifespan? CCRA responded:
[T]o the extent that the Trust constitutes a testamentary trust … it will cease to exist only when all of its assets have been distributed to the beneficiaries.
There is no provision in the Act regarding the duration of a testamentary trust. … [W]e refer you to Articles 1271 and 1272 of the CcQ, which provide for a maximum term of one hundred years for a personal trust such as the Trust.
Paragraph 249(1)(c)
Administrative Policy
7 May 2024 CALU Roundtable Q. 12, 2024-1005851C6 - Trust reporting - bare trusts
The property held by a nominee corporation as the trustee of a bare trust is sold early in the year, and the proceeds distributed to the beneficiary, so that the bare trust is terminated. Before the end of that calendar year, the nominee is dissolved.
CRA indicated that:
- Pursuant to s. 249(1), the bare trust would have a calendar taxation year for purposes of complying with s. 150, so that its filing deadline for the T3 return would be 90 days after the end of the calendar year (before taking into account the CRA dispensation for bare trusts for their 2023 taxation years).
- Regarding the dissolved nominee, “[t]he trustee of a trust is responsible for filing a T3 return required under paragraph 150(1)(c), including Schedule 15 (where required by section 204.2 of the Income Tax Regulations), for the taxation year of the trust.”
26 November 2020 STEP Roundtable Q. 11, 2020-0839891C6 - Subsection 104(19)
If a beneficiary receives an amount that is designated as a taxable dividend under s. 104(19) by the payor trust (which designation CRA considers to be effective on December 31 of the trust's taxation year), but that individual dies during the year, that dividend nonetheless is included in the individual’s terminal return (even though the death occurred before the December 31 effective date of the dividend designation) given that the taxation year of an individual (even of a deceased individual) is the calendar year and there “is no provision in the Act that shortens a taxpayer’s taxation year in his or her year of death so as to cause it to end as at the taxpayer’s date of death.” Thus, the requirement in s. 104(13) - that the dividend be income from a trust whose taxation year did not end before that of the individual - is satisfied.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 186 - Subsection 186(1) - Paragraph 186(1)(a) | Pt IV tax exemption no longer available because corporate beneficiary was no longer connected at December 31 effective time of s. 104(19) designation | 196 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) | dividend subject to Pt IV tax because payer and corporate beneficiary no longer connected at December 31 effective date of all s. 104(19) designations | 85 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) | designated dividend included in individual’s terminal return which has a December 31 year end | 129 |
29 May 2018 STEP Roundtable Q. 3, 2018-0744081C6 - Trust return due date on wind up
In contrast with ss. 249(1)(b) and 249(5), which provide that the taxation year for a graduated rate estate is based on the period for which the accounts are normally made up so that, in CRA’s view, the final T3 return for a GRE is due within 90 days of the final distribution, for a non-GRE trust, s. 249(1)(c) defines the taxation year to be the calendar year (except as otherwise provided), so that the due date is 90 days thereafter. Thus, if a non-GRE trust is wound up in mid-February, it might seem that the return cannot be filed until the following year. However, in fact, the T3 assessing personnel will assess such a return that is filed after the final distribution date and before the calendar year end.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 249 - Subsection 249(5) | a non-GRE trust can have a calendar tax year even where it was dissolved | 193 |
Subsection 249(3) - Fiscal period exceeding 365 days
Administrative Policy
S4-F7-C1 - Amalgamations of Canadian Corporations
Requirement for Amalco year end not to skip a year
1.17.1 … [A] fiscal period of a corporation can be up to 53 weeks. However, subsection 249(3) will prevent a predecessor corporation from extending its fiscal period where to do so would result in the corporation having a fiscal period that exceeds 365 days and, for that reason, not having a tax year that ends in a particular calendar year. For example, subsection 249(3) will prevent a predecessor corporation that has a tax year that commenced January 1, 2018 and ends on December 31, 2018 and that amalgamates with another predecessor corporation on January 2, 2019, from having its tax year that would otherwise end on December 31, 2018 extended to January 1, 2019. This is because the extension would result in the predecessor corporation not having a tax year that ended in 2018.
28 April 2015 External T.I. 2014-0560131E5 - Subsection 249(3) - fiscal period exceeds 365 days
A taxpayer changes from a calendar to a floating fiscal period, with the first such period beginning on January 1, 2014, and ending on January 3, 2015. Would s. 249(3) apply to the subsequent fiscal period, beginning on January 4, 2015 and ending on January 1, 2016? CRA responded:
As a result of [2012] changes to subsection 249(3)… our views in document 5-933096 with respect to the application of 249(3) to the second fiscal period are no longer valid. …[A]ccording to paragraph 249(3)(b), the first fiscal period is deemed to end on December 31, 2014 and the next fiscal period is deemed to commence on January 1, 2015. In addition, paragraph 249(3)(a) would apply to deem the corporation's second taxation year to commence on the first day of the immediately following calendar year, January 1, 2015.
17 October 2014 Internal T.I. 2014-0535561I7 F - Application du paragraphe 249(3)
A corporation has a financial year commencing 31 December 2009 and ending 3 January 2011. The Directorate stated (TaxInterpretations translation):
[B]y the operation of paragraphs 249(3)(a) and (b), the corporation will have a deemed taxation year end as well as a deemed fiscal period end of 31 December 2010. Consequently…the corporation must make an adjustment on Schedule 1 of the … T2 in order not to include the results of the business attributable to the period of three days in the calculation of its income for the taxation year deemed to end on 31 December 2010.
18 January 1994 External T.I. 9330965 F - Deemed Taxation Year
Where a corporation has a fiscal year commencing on December 29, 1991 and ending on January 2, 1993 and its subsequent fiscal period commences on January 3, 1993 and ends on January 1, 1994, s. 249(3) will deem the first taxation year to end on December 31, 1992 so that a shareholder loan made on January 2, 1993 will have to be repaid by December 31, 1993 rather than January 2, 1994, and an amount to which s. 78(4) otherwise would apply will have to be paid 180 days after December 31, 1992 rather than 180 days after January 2, 1993. Because the second fiscal period will not exceed 365 days, s. 249(3) will not apply to deem a year-end of December 31, 1993.
Subsection 249(3.1) - Year end on status change
Administrative Policy
22 October 2014 Internal T.I. 2014-0550191I7 - Subsections 89(11) and 249(3.1)
Does s. 249(3.1) apply when a corporation files a s. 89(11) election, thereby triggering a deemed year-end - and does a revocation of the election trigger such a deemed year? CRA responded:
[T]he corporation becomes a non-CCPC at the beginning of this particular taxation year and after. Consequently, the fact that the corporation files a subsection 89(11) election will not, in and by itself, trigger a deemed year-end under subsection 249(3.1). …
[A] corporation that revokes its subsection 89(11) election will not be deemed not to be a CCPC at the beginning of the taxation year following the particular taxation year. Consequently, the revocation of the subsection 89(11) election under subsection 89(12) will not, in and by itself, trigger a deemed year-end under subsection 249(3.1).
27 March 2014 External T.I. 2014-0523171E5 - Deemed year-end pursuant to 249(3.1)
A few years after the taxpayer (a Canadian-controlled private corporation) made the s. 89(11) election, two public corporations acquired more than 50% of its voting common shares. Did s. 249(3.1) apply to deem the taxpayer to have a taxation year ending immediately before the time of the share acquisition?
By virtue of the election, the taxpayer had ceased to be a CCPC under para. (d) of the definition. Accordingly, s. 249(3.1) did not apply at the time of the share acquisition. However, s. 249(4)(a) would apply if there was an acquisition of control at that time.
27 March 2014 External T.I. 2014-0524851E5 F - Deemed year-end and CPCC status
On December 1, B Corporation (a CCPC) makes a binding offer (to which s. 251(5)(b) applies) to purchase all the shares of A Corporation whose ultimate control is by a public corporation (Pubco) and whose taxation year end is December 31. Does A Corporation become a CCPC under s. 249(3.1) on December 1 at the moment of signature of the offer rather than at the time of the subsequent actual acquisition of control?
After noting the presumption in s. 251(5)(b), CRA stated (TaxInterpretations translation):
[E]ven if Corporation B is deemed to control Corporation A, the Act does not contain any provision providing that Pubco ceased to control Corporation A for purposes of determining if Corporation A was a CCPC, as defined in subsection 125(7).
That is what the Tax Court of Canada indicated in … Ekamant…2009 TCC 408 … .
Thus … Corporation A did not become a CCPC at the time of the signing of the purchase offer made by Corporation B since it continued to be controlled by Pubco at that time. As Corporation A did not become or cease to be a CCPC at that time, the conditions for the application of subsection 249(3.1) were not satisfied at the time of the signing of the purchase offer on December 1.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 251 - Subsection 251(5) - Paragraph 251(5)(b) | sub of public corporation does not become CCPC until time of its actual acquisition of control | 234 |
28 November 2013 External T.I. 2013-0504221E5 F - Fin d'années réputées
Opco, a Canadian-controlled private corporation with a September 30 year end, amalgamates on October 1 with another CCPC so that the deemed year end arising from the amalgamation coincides with Opco's normal year end. At noon on October 1, Amalco ceases to be a CCPC by issuing an option to a non-resident. Can Amalco make the s. 249(3.1) election with a view to having only one year end arising out of the transactions (September 30 of that year)?
After noting that in the absence of the election, s. 249(3.1) deemed a year end of Amalco to occur at 11:59 a.m. on October 1, CRA responded negatively (TaxInterpretations translation):
[T]he first condition provided in s. 249(3.1)(c)(i) is not satisfied. As Amalco is a new corporation by virtue of paragraph 87(2)(a) and no provision provides for a continuation of the predecessor corporations for these purposes, Amalco does not have a taxation year which would have ended in the period of seven days that ended immediately before the time when Amalco lost its CCPC status.
2 December 2011 External T.I. 2011-0424446E5 - Interaction of Subsections 249(3.1) and 249(4)
on November 30, a Canadian-controlled private corporation (Corp A) and a non-resident enter into a purchase agreement, with the non-resident closing the purchase of Corp A later in the day. No election is made under s. 256(9), so that the taxation year of Corp A which commenced on January 1 is deemed by s. 249(4) to end at the end of November 29.
By virtue of s. 249(3.1)(a) and s. 251(5)(b), Corp A would have a second taxation year commencing at the beginning of November 30 and ending immediately before the signing of the sale agreement. Accordingly, Corp A would continue to be a Canadian-controlled private corporation for such (second) taxation year.
9 December 2010 External T.I. 2010-0388101E5 F - CCPC status and acquisition of control
The shareholders of Opco, a Canadian-controlled private corporation which has had a July 31 taxation year end, agrees on December 26, 20-A with a public company ("Pubco") for the acquisition of Opco’s shares to occur on January 1, 20-B, upon satisfaction of the specified conditions. S. 251(5)(b) deems Pubco to have acquired control of Opco on December 26, 20-A for purposes inter alia of the CCPC definition, so that s. 249(3.1) triggers a deemed year-end for Opco on December 26, 20-A (since it ceases to be a CPCC). Opco also has a deemed year-end on December 31, 20-A under ss. 256(9) and 249(4) as its control is acquired on January 1, 20-B.
Can Opco elect under s. 249(4)(c) [now s. s. 249(4)(b)] to have its taxation year otherwise ending on December 26, 20-A extended to December 31, 20-A. If so, can Opco claim the small business deduction for its taxation year ending on December 31, 20-A? CRA responded:
Opco could elect under paragraph 249(4)(c) to have its taxation year beginning August 1 and otherwise ending on December 26, 20-A be deemed to end immediately before the acquisition of control time, i.e., December 31, 20-A.
However, since at a time in its taxation year beginning August 1 and ending December 31, 20-A, Opco would not be a CCPC, it would not be eligible for the SBD at any time in its taxation year beginning on August 1 and ending on December 31, 20-A.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 249 - Subsection 249(4) - Paragraph 249(4)(b) | CCPC whose control has been agreed to be acquired by Pubco can elect to extend its deemed s. 249(3.1) year end under s. s. 249(4)(b) | 173 |
Articles
Kenneth Saddington, Jennifer Hanna, "Mergers and Acquisitions in the Light of the US Tax Changes", 2018 Conference Report (Canadian Tax Foundation), 19:1-36
Hybrid potential where IP with little recapture (p. 19:14)
It may be possible to use a hybrid transaction to reconcile a US acquiror’s desire to acquire the IP as an asset acquisition with a vendor’s desire to sell shares … .
Conversion to non-CCPC and sale of IP in hybrid transaction (pp. 19:14-15)
The Canadian target’s shareholders and the US acquiror would first enter into a binding share purchase agreement with respect to the shares of Canadian target, resulting in a loss of CCPC status and a deemed year-end. [Fn. 52. paragraph 251(5)(b) and subsection 249(3.1)] The Canadian target would incorporate a new Canadian subsidiary (“Newco”) and transfer all of the assets that constitute the business, including the IP, to Newco in consideration for common shares. The Canadian target could elect to dispose of all of the assets other than the IP to Newco on a fully income-tax-deferred basis under subsection 85(1). The Canadian target would elect to dispose of the IP for proceeds of disposition equal to fair market value. The capital gain realized on the Canadian target’s transfer of the IP to Newco will be realized after the Canadian target ceases to be a CCPC; the resulting taxable capital gain should not, therefore, be subject to the aggregate investment income and RDTOH regimes, and the capital gain will be taxed at a rate of approximately 13.5 percent, depending on the relevant provincial tax rate. Newco will have an adjusted cost base in the IP equal to its fair market value for the purposes of the Income Tax Act.
Step-up and sale of shares in hybrid transaction (p. 19:15)
The capital gain realized on the sale of the IP will generally create CDA for the Canadian target. [fn 55: Even though entering into the agreement of purchase and sale will cause the Canadian target to cease to be a CCPC, paragraph 251(5)(b) does not apply for the purposes of determining whether a corporation is a “private corporation.” In addition, where the Canadian target has become a CCPC, any portion of the gain that accrued while the Canadian target was controlled in fact by one or more residents will be excluded from the CDA calculation.] The Canadian target would then increase the stated capital of the shares that will be sold by an amount equal to the non-taxable portion of the capital gain generated on the transfer to Newco, resulting in a deemed dividend under paragraph 84(1)(b). The Canadian target can elect to have the resulting deemed dividend be a capital dividend pursuant to subsection 83(2). The adjusted cost base of the Canadian target’s shares that are held by the shareholders should be increased by the amount of the capital dividend deemed to have been received by them. The shares of the Canadian target would then be acquired for cash for an amount equal to the agreed-upon purchase price, less the corporate tax liability in respect of the taxable capital gain (and any recapture) realized on the sale of the IP.
In many circumstances, in particular where there is no (or immaterial) recapture in respect of the IP, the shareholders’ after-tax proceeds will approximate (and may exceed) the after-tax proceeds that would have been realized on an ordinary share sale without the hybrid planning….
Anthony Strawson, Timothy P. Kirby, "Vendor Planning for Private Corporations: Select Issues", 2017 Conference Report, (Canadian Tax Foundation), 11:1-28
Use of s. 89(11) election to avoid deemed s. 249(3.1) year end (p. 11:18)
Subsection 249(3.1) applies to deem a CCPC’s year-end to occur when the CCPC undergoes a change in status to a non-CCPC. This provision should be considered by CCPC vendors and their shareholders when entering into any share sale transactions with foreign buyers or public corporations that could result in a change of control. The CRA’s position is that the deemed year-end in subsection 249(3.1) does not occur when a corporation undergoes a change in status if the corporation has made a subsection 89(11) election in the same taxation year [fn 50: … 2010-0377251E5 … 2014-055019117 … and … 2014-0523171E5] because subsection 89(11) applies from the beginning of the year in which the change in status occurs. The interaction between subsections 249(3.1) and 89(11) can provide an opportunity to avoid a deemed year-end under subsection 249(3.1) while permitting pre-closing transactions, such as asset dropdowns, which could be more efficient if the corporation is a non-CCPC.
Subsection 249(4) - Year end on change of control
Administrative Policy
15 October 2014 External T.I. 2014-0547551E5 F - Acquisition of Control
The common shares of Opco are held as follows: A-20%; B-9%; C-10%; D-25%; E-10%; F-13%; G-13%. A, B and C are a related group as are E, F and G. D is unrelated to the others. All the shareholders act in concert to control Opco.
After noting that there would be an acquisition of control of Opco if A acquired the shares of E, F and G (given that “the jurisprudence recognizes that control by one person excludes simultaneous control by a group”), CRA went on to address whether there would be an acquisition of control if A, B, C and D acquired the shares of E, F and G in proportion to their respective existing percentage ownership, stating:
The described acquisition of the shares…of Opco by A, B and C and would establish respective interests of 31%, 14%, 16% and 39%. …[T]he related group comprising A, B and C would have an interest of 61%... .That could ["pourrait"] represent a sufficient common link to indicate that a new group controlled Opco. In such determination, it also is necessary to take into account that a significant number of the shareholders of Opco (three out of seven) would cease to be such and the total interest of the departing shareholders would represent a significant percentage (36%) of the totality of the shares of Opco. This situation differs significantly from the case of a departing shareholder with little or no common link or common interest with the other shareholders with which it did not act in concert, and thus did not form part of the control group. …[I]t is quite likely ["fort probable"] that there would be a resulting acquisition of control of Opco… .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(2) - Paragraph 251.2(2)(a) | shrinking of CCPC control group likely was AOC if sufficiently material | 372 |
15 April 2014 External T.I. 2014-0527231E5 F - Acquisition of control and amalgamation
A plan of arrangement provided for the following transactions to occur on 18 January 20X1 and in the indicated order but without a particular hour for each transaction being specified:
- Sale of some assets of the corporation.
- Roll of its shares.
- Acquisition of its control (with no s. 256(9) election being made).
- Amalgamation with the acquirer.
After noting that s. 249(4)(a) deemed there to be a taxation year end immediately before the commencement of January 18 (i.e., at the end of January 17) and that the CRA policy (per 2014-0523251E5 F), was that the year end resulting from the amalgamation could not precede key corporate transactions occurring on the day of the amaglamation and which logically occurred before the amlgamation, CRA stated (TaxInterpretations translation):
The time of such taxation year end [from the amalgamation] thus could not be before the effective time of the transactions occurring before the amalgamation (taking the into account the logical order of the transactions).
...Therefore, the corporation must account for the tax consequences respecting the asset sale and share rollover transactions (which occurred before the acquisition of control and the amalgamation), in the taxation year of the corporation terminating immediately before the amalgamation.
The corporation thus technically has two taxation years, one which is deemed to terminate at the end of January 17, 20x1, and the other which would end during January 18, 20X1. The corporation’s second taxation year would be very short.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(a) | same day amalgamation following control acquisition gives rise to two taxation year ends if out-of-normal course transactions occur on day of closing | 327 |
26 March 2013 External T.I. 2014-0523251E5 F - Acquisition of control and amalgamation
Following a sale of assets of a corporation and a rollover of its shares on 18 January 20X1, an acquisition of control of the corporation occurs at 18:00 hours and it then is amalgamated with the acquirer. The plan of arrangement or closing agenda, as the case may be, does not specify particular times at which these transactions occur and the corporation elects under s. 256(9) for the acquisition of control to occur at 18:00 hours. Will multiple year ends occur as a result and, if so, in which taxation year will the preliminary transactions be considered to occur?
CRA stated (TaxInterpretations translation):
Where a corporation does not effect transactions outside the ordinary course of business on the day of an amalgamation for which the certificate of amalgamation does not specify the time of the amalgamation, we consider that the amalgamation generally will occur at the beginning of the day… . In contrast, our position is different where a plan of arrangement or a closing agenda provides for various transactions out of the ordinary course of business to occur on the day of the amalgamation in addition to the acquisition of control and the amalgamation… If the transactions are effected...in a logical order...[CRA] will consider that the amalgamation occurs at the time established by the logical order of the transactions. ...[Here] this time is after the effective time of the acquisition of control. at a time determined in accordance with the logic of the transactions. …
[B]y reason of the subsection 256(9) election, a deemed taxation year end occurs…at the time immediately before 18:00 hours… .The corporation must take into account the taxation consequences of the sale transactions…and the share rollover …in the taxation year…which terminated immediately before the effective time of the acquisition of control. …
Furthermore, given that the amalgamation occurs after all the transactions of January 18…including the acquisition of control…at 18:00 hours, the second taxation year of the corporation terminates immediately before the amalgamation by virtue of paragraph 87(2)(a). … The corporation would therefore technically have two taxation years that would be deemed to end during January 18, 20X1. The second ... would be very short.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(a) | double taxation year ends where transactions occur on the closing date before acquisition and amalgamation | 379 |
18 December 2013 External T.I. 2013-0511101E5 F - Substantial interest - Part VI.1
An inter vivos trust (Trust), with three individual trustees holds Class A non-voting common shares and C special voting shares of Corporation. An estate, whose three executors are the same individuals, holds non-voting Class B preferred shares. In order to convert the estate's interest into a substantial interest for Part VI.1 purposes, they cause Corporation to redeem the Class C voting shares which, in turn, causes the Class B preferred shares to become voting pursuant to s. 48(2) of the Quebec Business Corporations Act (a provision which effectively deems all shares to become voting whenever none is voting).
The redemption of the Class C shares did not result in an acquisition of control of the Corporation (TaxInterpretations translation):
[T]he same persons (D, F and G) controlled Corporation before and after the redemption of the Class C shares of the capital stock of Corporation because the trustees of Trust who controlled Corporation before the redemption were the same persons as the executors of Succession that controlled Corporation after the redemption.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 191 - Subsection 191(3) | creation of substantial interest through redemption of special voting shares | 414 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition | no disposition of shares that became voting by operation of law (due to cancellation of voting shares) | 171 |
| Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(2) - Paragraph 251.2(2)(a) | no acquisition of control where votes pass from trust to an estate with the same individuals as executors | 187 |
17 February 2011 External T.I. 2010-0388081E5 - Clarification STEP Roundtable Q3 - Deemed Year End
It is generally CRA's position that a target corporation will only have one deemed year end where an acquisition of control of the target is followed on the same date by its amalgamation with the acquirer. "Furthermore...it would appear to be appropriate generally that the transactions which are legally effected by the predecessor corporation should be reported by that same predecessor corporation for tax purposes, rather than by the amalgamated entity."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(b) | double year ends where acquisition of control under s. 256(7)(b)(ii) | 162 |
| Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(a) | double year ends where acquisition of control under s. 256(7)(b)(ii) | 165 |
Income Tax Technical News, No. 34, 27 April 2006 under "Change in Trustees and Control".
After noting that 2004-0087761E5 indicated that a change in any of the three trustees of an inter vivos trust would generally result in a new group of persons controlling the corporation so that the acquisition of control rules in the Act would apply, unless a saving provision in paragraph 256(7)(a) applied, CRA noted that Consolidated Holding held that "where the majority of the voting shares of a corporation are held by a trust, it is the trustees of the trust who have the legal ownership of the shares, who have the right to vote those shares (subject to any restrictions on such right in the trust indenture) and who, therefore, control the corporation" and that in the absence of evidence to the contrary, CRA would consider there to be a presumption that all of the trustees constitute a group that controls the corporation, CRA then stated:
We took this view because we believed that the fiduciary obligation that each of the trustees would have to act in the best interests of the beneficiaries of the trust would make it unlikely that two trustees could properly act together to control a corporation, to the exclusion of a third trustee.
Income Tax Technical News, No. 7, 21 February 1996 (cancelled)
Discussion of when shareholders of a closely-held corporation are considered to be acting in concert or otherwise to represent a group.
1994 A.P.F.F. Round Table, Q. 48
"In general, the Department's position is that an agreement signed between shareholders has no influence whatever on determining de jure control of a corporation for purposes of the Act, regardless of the type or nature of the agreement among shareholders."
18 May 1993 T.I. (Tax Window, No. 31, p. 4, ¶2511)
Where a widely-held public corporation (A) issues treasury shares pursuant to a takeover bid to the shareholders of B (another widely-held public corporation) in exchange for their shares of B, and the exchange ratio is such that the former shareholders of B thereby acquire a majority of the issued shares of A, there will be an acquisition of control of B by A. Although, collectively, the former shareholders of B hold a majority of the shares of A, they would not control A unless there is a common link between them beyond their status as shareholders.
25 August 1992 External T.I. 5-921586
Where an individual (or group of persons) transfers a controlling interest in one corporation to a second corporation in exchange for a controlling interest in the second corporation, there will not be an acquisition of control of the first corporation, but there will be an acquisition of control of the second corporation, where the transfers were not related to the second corporation immediately before the acquisition. Unrelated persons will be considered to be a group where there is evidence that they have a common link or interest or that they act together (i.e., without independent interests) to control the corporation.
Where there is no change in the control of a parent corporation, there has been no change in control of its subsidiaries.
29 July 1992 Memorandum (Tax Window, No. 21, p. 4, ¶2037)
Two unrelated individuals each holding ½ of the shares of a corporation will not be considered to act in concert simply because the consent of both is required before the corporation can undertake any action. In order to act in concert, there must be some arrangement where they have agreed to vote their shares in the same manner or have their nominees to the board vote together on most matters. Alternatively, they have common interests such that it would be reasonable to conclude that they will vote their shares together.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 256 - Subsection 256(5.1) | 31 |
29 June 1992 Internal T.I. 7-920444
Discussion of what constitutes a "group of persons".
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 256 - Subsection 256(5.1) | 34 |
28 May 1992 T.I. 920817 (December 1992 Access Letter, p. 38, ¶C248-120)
Where trustees of a trust control the voting rights of shares of a corporation prior to the distribution of the shares to unrelated beneficiaries, there will be a change of control on the distribution.
14 May 1992 External T.I. 5-920356
It is RC's position that a shareholders' agreement, regardless of whether or not it is pursuant to a specific statute or includes the corporation as a party, does not affect the determination of control for the purposes of the Act. Accordingly, where two shareholders, who deal at arms's length with each other and own 75% and 25%, respectively, of the shares of a corporation, enter into a unanimous shareholder agreement which provides that the two directors of the corporation shall be elected with the unanimous consent of the shareholders, the control of the corporation will not be affected, although the agreement may be relevant to the question de jure control for purposes of s. 256(5.1).
91 C.R. - Q.12
The existence of a shareholder agreement between two 50% shareholders will not always be prima facie evidence that they constitute a group.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 256 - Subsection 256(5.1) | 30 |
15 November 1991 T.I. (Tax Window, No. 11, p. 10, ¶1535)
A corporation ("Holdco") which held less than 50% of the shares of another corporation ("Opco") and which dealt at arm's length with the other shareholders of Opco did not control Opco notwithstanding that pursuant to a voting agreement with another corporation ("Exco"), whose shares were sufficient to result in their combined holding exceeding 50%, Exco agreed to vote its shares of Opco in the same way as Holdco. Accordingly, a further acquisition of shares by Holdco resulting in its own shareholding exceeding 50% entailed an acquisition of control of Opco.
90 C.R. - Q43
In the absence of the application of s. 256(8), control of a corporation normally will be considered to be acquired on the date of closing.
90 C.R. - Q39
Where corporations A and B are amalgamated on the same day on which control of corporation B was acquired by corporation A, corporation B will have only one year-end as a result of the acquisition of control on the amalgamation.
7 September 1990 Income Tax Severed Letter - Application of subsection 249(4) to foreign affiliates
The Department stated:
We confirm that we are of the opinion that subsection 249(4) does not apply to a foreign affiliate. However, we note that the proposed amendments to the Income Tax Act released by the Minister of Finance on July 13, 1990, if enacted, provide for an amendment to subsection 249(4) such that it will apply to a foreign affiliate that carried on a business in Canada at any time in its last taxation year commencing before the change in control of the foreign affiliate.
In our opinion, subsection 249(4) as enacted by S.C. 1987, c. 46, s. 70 applies only to corporations in respect of which subsection 249(1) applies. It is also our opinion that subsection 249(1) does not apply to a corporation that is a foreign affiliate as paragraph 95(1)(g) [now s. 95(1) - taxation year] applies to such corporations. Accordingly, subsection 249(4) does not apply to a corporation to which paragraph 95(1)(g) applies.
11 June 1990 T.I. (November 1990 Access Letter, ¶1537)
Where 50% of the shares of Corporation C are each owned by Corporation A and Corporation B and an individual (who previously owned 1/2 of the shares of Corporation A) acquired the balance of the shares of Corporation A from his father and all the shares of Corporation B from his uncle, there will be an acquisition of control of Corporation C because the individual will be considered to have acquired control of Corporation B which, prior to the acquisition, was a member of an unrelated group which controlled Corporation C.
June 1990 Meeting with Alberta Institute of Chartered Accountants (November 1990 Access Letter, ¶1499, Q. 1)
Where a wholly-owned subsidiary of a corporation sells 60% of its common shares in a public offering, there has been no change of control if there is no identifiable person or group of persons who have acquired control.
19 March 1990 T.I. (August 1990 Access Letter, ¶1393)
Where one of the two 50% shareholders of a company sells his shares to an arm's length purchaser, a group of persons will be considered to have acquired control of the corporation where there is evidence that they have a common link or interest or that they act together to control the corporation. Because the word "control" in ss.111(5) and 249(4) refers to the right of control that rests in the ownership of a majority of the voting rights, the terms of a shareholders' agreement would not by themselves result in de jure control of the company having been acquired.
8 March 1990 Ministerial Letter 59638 F - Deemed Year End Where Change of Control
S.249(4) would apply to the Canadian branch of a U.K. company when control of the U.K. company has been acquired.
16 January 1990 T.I. (June 1990 Access Letter, ¶1284)
The voting rights of a public corporation held by a Canadian-controlled private corporation increases from 45% to 55% as a result of the conversion of multiple-voting shares held by members of the public into non-multiple voting shares. If the holding company did not have control over the public corporation prior to the conversion, but had control after the conversion, there would have been an acquisition of control of the public corporation by the holding company. In determining whether a transaction amounts to an acquisition of control one must examine not only the share conditions but also the by-laws as well as any written agreement between the shareholders which may affect the share conditions.
24 November 89 T.I. (April 90 Access Letter, ¶1188)
Where Mr. A is a sole shareholder of company A and Mr. A transfers all the shares of company A to company X in exchange for 55% of the voting shares of company X, there would be no acquisition of control of company A.
18 October 89 Meeting with Quebec Accountants, Q.2 (April 90 Access Letter, ¶1166)
In the situation where A owns all the shares of a corporation and sells half of those shares to B, there would be an acquisition of control by a group made up of A and B if they act together to control the corporation. The fact that B is not related to A is one element that could lead to the conclusion that there is no acquisition of control. However, in a small private corporation, it must be presumed that a person acquiring a non-majority interest is induced to do so for reasons that suggest that he acts in concert with the other shareholder.
The situation where A sells all his shares to B and C also is discussed.
89 C.R. - Q.16
Where Mr. A, who owns 100% of the voting shares of Opco, sells 10% of the shares to Mr. B who deal at arm's length with Mr. A, there will not be an acquisition of control provided Mr. A controls Opco before and after the sale of the shares of Opco. If Mr. A instead sells 50% of the shares of Opco to Mr. B, the group comprised of Mr. A and B will be considered to have acquired control of Opco if A and B have sufficient common connections or business interest to make it reasonable to assume that they will act either in concert or with a common interest to control Opco.
If Mr. A and Mr. B are brothers who each own 50% of the voting shares of Opco, then on the conversion of the shares of Opco owned by Mr. B into non-voting shares, Mr. A will be considered to have acquired control of Opco.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(a) | 64 |
88 C.R. - Q.40
Where 1/2 of the shares of a corporation are owned by each of A and B, and B sells his shares to C, it will be a question of fact whether control of the corporation has been acquired by a group of persons. If C acts together with A to control the corporation, then control will have been acquired. [C.R.: 111(5)]
IT-64R2 "Corporations: Association and Control" under "Options"
Association and Control"
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 251 - Subsection 251(5) - Paragraph 251(5)(b) | 16 |
Articles
Gregory M. Johnson, Wesley R. Novotny, "An Update on Flow-through Shares in the Energy Sector", 2016 Conference Report (Canadian Tax Foundation),12:1-39
Loss restriction event should not create flow-through share timing issues (p. 12:18)
...Fortunately, the operating FTS provisions [f.n. 72 For example, the definition of FTS in subsection 66(15) and subsections 66(12.6), (12.62), and (12.66)]. determine time by reference to calendar years and not taxation years.
...Thus, the stub taxation year created on an LRE should not, in and of itself, create any timing issues for the issuing FTS or for the incurring and renouncing qualifying expenditures.
Joel A. Nitikman, "Who Has De Jure Control of a Corporation When Its Shares Are Held by a Limited Partnership?", 2011 Canadian Tax Journal, Vol 59, p. 765
Argues that (at least where the shares of a subsidiary corporation held as partnership property are registered in the name of the limited partnership rather than the general partner), an acquisition of control of the general partner or of the limited partners will not result in an acquisition of control of the subsidiary corporation as it is owned by the limited partnership itself.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(5) | 65 |
Jack Bernstein, "Corporate Control: An Evolving Canadian Concept", Tax Notes International, February 20, 2012, p. 597
Survey of jurisprudence on de jure control.
Robert Couzin, "Some Reflections on Corporate Control", 2005 Canadian Tax Journal, p. 305.
Ronit Florence, "Acquisition of Control of Canadian Resident Corporations: Checklist", Business Vehicles, Vol. V, No. 4, 1999, p. 262.
Ewens, "Acquisition of Control Issues and Secondary Offerings of Shares", Corporate Structures and Groups, Vol. IV, No. 1, 1996, p. 190.
Bernstein, "Canadian Implications of Control", Tax Profile, September 1995, Vol. 4, No. 27, p. 289.
Brown, "The Transfer of Property on Death: Ownership, Control and Vesting", 1994 Canadian Tax Journal, Vol. 42, No. 6, p. 1449.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Ownership | 0 | |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition | 0 |
"Group Control", 1992 Corporate Structures and Groups, Vol. 1, No. 1, p. 9.
Lahmer, "Acquisition-of-Control Rules", 1990 Corporate Management Tax Conference Report, c. 4
Contains checklist.
Tremblay, "Disposition of Foreign Affiliate: Year-end on Change of Control", Canadian Current Tax, February, 1990, page P3
It is not clear that s. 249(4) will apply to a disposition by one foreign affiliate of the shares of another foreign affiliate.
Harris, "Acquisition of Control", Practice Notes, Canadian Current Tax, February 1988, p. P11
General discussion of the consequences of an acquisition of control.
Paragraph 249(4)(a)
Administrative Policy
15 June 2021 STEP Roundtable Q. 10, 2021-0883191C6 - Acquisition of control
ACo repurchased all the shares held by one of its 50% shareholders so that there was an acquisition of control (“AOC”) by the other shareholder and a consequential deemed dividend. Will the resulting dividend refund to ACo arise in its new taxation year commencing as a result of the AOC, and would the answer be affected by whether ACo elects under s. 256(9) for the AOC to occur at the time of its actual occurrence rather than at the beginning of the day?
CRA indicated that, either way, the dividend refund to ACo computed under s. 129(1)(a) would be for its new taxation year.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 129 - Subsection 129(1) - Paragraph 129(1)(a) | a dividend refund, from a redemption also generating an AOC, arises in the taxation year commencing with the AOC | 137 |
Paragraph 249(4)(b)
Administrative Policy
9 December 2010 External T.I. 2010-0388101E5 F - CCPC status and acquisition of control
The shareholders of Opco, a Canadian-controlled private corporation which has had a July 31 taxation year end, agrees on December 26, 20-A with a public company ("Pubco") for the acquisition of Opco’s shares to occur on January 1, 20-B, upon satisfaction of the specified conditions. S. 251(5)(b) deems Pubco to have acquired control of Opco on December 26, 20-A for purposes inter alia of the CCPC definition, so that s. 249(3.1) triggers a deemed year-end for Opco on December 26, 20-A (since it ceases to be a CPCC). Opco also has a deemed year-end on December 31, 20-A under ss. 256(9) and 249(4) as its control is acquired on January 1, 20-B.
Can Opco elect under s. 249(4)(c) [now s. s. 249(4)(b)] to have its taxation year otherwise ending on December 26, 20-A extended to December 31, 20-A. CRA responded:
Opco could elect under paragraph 249(4)(c) to have its taxation year beginning August 1 and otherwise ending on December 26, 20-A be deemed to end immediately before the acquisition of control time, i.e., December 31, 20-A.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 249 - Subsection 249(3.1) | CCPC which has a December 26 deemed year end under ss. 249(3.1) and 251(1)(b) that is extended to December 31 under s. 249(4)(b) loses SBC for that extended year | 236 |
Subsection 249(4.1)
Administrative Policy
18 June 2015 STEP Roundtable Q. 1, 2015-0572131C6 - 2015 STEP Q1- Tax Year of Graduated Rate Estate
The executors adopt a first year-end for the estate of an individual who died on March 31, 2016, of September 30, 2016. The second and third year-ends are September 30, 2017 and 2018. Lastly, a year-end is deemed to arise on March 31, 2019 (36 months after death), which is the last taxation year during which the testamentary trust is a graduated rate estate. Thereafter, it is required to adopt a December 31 year-end. Does CRA agree?
CRA responded:
Assuming the estate otherwise meets all the conditions to be the deceased individual's GRE throughout the first 36 month period, where the executor chooses to have a short first taxation year end for the estate the 36 month period would span four taxation years.
In the scenario provided, the first and fourth taxation years are less than 12 months long, and the estate would be subject to tax based on the graduated tax rates for individuals for the first four taxation years as indicated.
Subsection 249(5)
Administrative Policy
29 May 2018 STEP Roundtable Q. 3, 2018-0744081C6 - Trust return due date on wind up
Where a trust winds up, by distributing all of its property to its beneficiaries, does the T3 Return need to be filed within 90 days of the date of wind up, or does the normal (calendar) year-end govern when the tax return must be filed?
After first assuming that there was no event causing a deemed year end, CRA indicated that under s. 249(1)(b) and 249(5), the taxation year for a graduated rate estate is based on the period for which the accounts are normally made up, which would end with the final distribution date – so that the return due date is 90 days after the final distribution. For a non-GRE trust, s. 249(1)(c) defines the taxation year to be the calendar year (except as otherwise provided), so that the due date is 90 days thereafter.
Thus, if a non-GRE trust is wound up in mid-February, it might seem that the return cannot be filed until the following year. However, in fact, the T3 assessing personnel will assess such a return that is filed after the final distribution date and before the calendar year end.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 249 - Subsection 249(1) - Paragraph 249(1)(c) | non-GRE's tax year does not end with final distribution | 129 |