Regulation 5301 - Corporations Under Part I of the Act

For the purpose of establishing the frequency of the instalment payments of the corporation formed on the amalgamation of a CCPC, is it necessary to adjust the taxable income or taxable capital, as the case may be, of the new corporation? CRA stated:

Paragraph 5301(4)(a) of the Regulations provides that for the purposes of section 157, the "first instalment base" of a new corporation that was formed as a result of an amalgamation for its first taxation year is calculated by taking into account the tax payable under Part I of the Act by the predecessor corporations for their last taxation year. In addition, a new corporation created as a result of an amalgamation can qualify as SCCPC if all the conditions set out in subsection 157(1.2) are satisfied. The taxable income and taxable capital employed in Canada of the predecessor corporations for the taxation year that ended immediately before the amalgamation shall not be taken into account for the purposes of paragraphs 157(1.3)(b) and 157(1.4)(b) to determine whether the new corporation qualifies as a SCCPC since that corporation is deemed to be a new corporation and the predecessor corporations are deemed to have ceased to exist.

[T]he amount of the instalments in the first year of taxation of a new corporation that has been created as a result of an amalgamation is calculated on the basis of the tax payable by the predecessor corporations for their last taxation yearn and the new corporation created as a result of the amalgamation may make its instalment payments on a quarterly rather than monthly basis for its first taxation year if all the conditions in subsection 157(1.2) of the Act are satisfied.

For the purpose of establishing the frequency of the instalment payments for parent corporation following the winding-up of a CCPC, is it necessary to adjust the taxable income or taxable capital, as the case may be, of the parent? CRA responded:

Where a subsidiary within the meaning of subsection 88(1) has been wound-up and all or substantially all of the property of the subsidiary has been distributed to its parent corporation, paragraph 5301(6)(a) of the Regulations provides that the "first instalment base" of the parent company for the taxation year in which the property of the subsidiary was distributed to it is calculated in particular by taking into account the "first instalment base" of the subsidiary. Furthermore, the taxable income and taxable capital employed in Canada of a subsidiary for the taxation year of its winding-up must be taken into consideration for the purposes of paragraphs 157(1.3)(b) and 157(1.4)(b) to determine whether the parent qualifies as a SCCPC [small CCPC] since the parent and the subsidiary are associated in the course of the particular taxation year by virtue of paragraph 256(1)(a).

For the purpose of establishing the frequency of the instalment payments for a particular corporation following the transfer to it of property of a CCPC, is it necessary to adjust the taxable income or taxable capital, as the case may be, of the transferee corporation? CRA responded:

Paragraph 5301(8)(a) of the Regulations provides for the calculation of the "first instalment base" of a transferee corporation where another corporation (the transferor) with which it was not dealing at arm’s length disposed of all or substantially all of its property to it and where section 85 applied to the disposition. Thus, the transferee corporation must consider the "first instalment base" of the transferor when calculating its "first instalment base" for its taxation year in which the disposition falls. However, the taxable income and taxable capital employed in Canada of the transferor for the taxation year in which the disposition falls will be taken into account for the purposes of paragraphs 157(1.3)(b) and 157(1.4)(b) to determine whether the corporation qualifies as a SCCPC [small CCPC] for the taxation year in which the disposition occurs only if the corporation and the corporation are associated during that taxation year.