| Mr. R.A. Short | |
| General Director | |
| Tax Policy and Legislation Branch | File No. 3-2955 |
| Department of Finance | A. Godin |
| 140 O'Connor Street | (613) 957-8971 |
| L'esplanade Laurier | |
| 16th Floor, Est Tower | |
| Ottawa, OntarioK1A 0G5June 11, 1990 |
Mr. Short:
We are in the process of reviewing a request for an advance income tax ruling on the application of section 87 to the amalgamation of a mutual insurance corporation with a non-mutual insurance corporation. The continued corporate existence of these corporations is provided for in the amalgamating legislation. We have concluded that section 87 is not applicable in the circumstances given the fact that the paragraph 87(1)(c) condition is not satisfied. We are now examining the tax consequences of such an amalgamation.
23 This is based on the decisions in Black and Decker (1975) 1 S.C.R. 411 (dealing with an amalgamation under the Old Canada Corporations Act); Witco Chemical (1975) 1 S.C.R. 273, (dealing with an amalgamation under the Ontario Business Corporations Act), and of Appeal in Guaranty Properties Limited et al. We note that the Canadian Tax Service commentary to section 87 suggests the same tax implications.
Subsection 87(2) of the Act provides a set of rules that are applicable where an amalgamation, as defined in subsection (1) takes place.
If a merger is not an amalgamation within the meaning of subsection 87(1), it will not be governed by those rules and the tax attributes of the new corporation must be determined based on other provisions of the Act. It would seem that of the continued existence of the predecessor corporations is provided for in the amalgamating legislation, the corporations will not have disposed of or acquired any assets. Moreover, the tax attributes of the predecessor corporations may flow through to the new corporation, notwithstanding the non-application of the various rollover provisions of subsection 87(2).
Could we have your views and concerns from a tax policy perspective on the flow through of assets, liabilities and other tax attributes of corporation (capital cost, losses etc...) in the amalgamating legislation where section 87 is not operative.
for Director GeneralReorganization and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch