Canco, and it wholly-owned subsidiary, Subco1 amalgamated on November 1, 2003, so that their calendar taxation years terminated early on October 31, 2003. The first taxation year of the new corporation (“Amalco1”) ended on December 31, 2003.
Canco and Subco1 each had a non-capital loss (a "Loss") in their taxation year ended October 31, 2003, as did Amalco1, and a wholly-owned subsidiary of Amalco1 (“Subco2”) for their taxation years ended December 31, 2003.
Amalco1 and Subco2 will amalgamate on January 1, 2007 to form Amalco2.
Does s. 87(2.11) take precedence over the application of ss. 87(2.1) in this situation? CRA responded:
It appears to us that the question of whether or not subsection 87(2.11) overrides the application of subsection 87(2.1) is irrelevant for the purposes of determining how the Losses of the corporations in the situation described above might be used. The purpose of subsection 87(2.1) is to allow the transfer of the Predecessor Corporations' Losses to the new corporation (the corporation resulting from the amalgamation of the Predecessor Corporations), i.e. the loss carry-forward. One of the purposes of subsection 87(2.11) is to allow a parent corporation that is amalgamated with a wholly owned subsidiary to use losses realized by the new corporation, i.e. the carrying back of losses.
In our view, subsection 87(2.11) would not be relevant to Amalco2's use of Subco2's Loss incurred in its taxation year ended December 31, 2003. …