In two rulings on post-mortem pipeline transactions (2002-0154223 and 2005-0142111R3), CRA required that the subject corporation remain in existence and continue its business as before, rather than being wound up or amalgamated. Why does CRA impose this one-year requirement, and can it be shortened? CRA responded:
As you indicated, one of the important elements of those files was that the particular corporation remained a separate legal entity (i.e. that it was not wound up into another corporation or amalgamated with another corporation) for a period of at least one year and that, during that same period, the particular corporation continued to carry on its business in the same manner as before. The advance income tax rulings also provided that after the above-described period, the particular corporation was wound up into a newly incorporated corporation of which the legatee was a shareholder. Finally, the advance income tax rulings indicated that the newly incorporated corporation progressively distributed assets to the legatee, either as repayment of the principal of a note or as a reduction of the paid-up capital relating to shares of its capital stock…. [T]hose elements contributed to this Directorate's conclusion that subsection 84(2) did not apply.
Furthermore, our Directorate's position is to decide on the potential application of section 84(2), section 84.1 or section 245(2) on a case-by-case basis … .