There has been a triangular amalgamation under which a subsidiary of Parent amalgamated with Target and the Target shareholders received shares of Parent. S. 87(4) requires that such shares be the only consideration received by the Target shareholders “on the amalgamation.” Is this condition satisfied where, following the amalgamation, Parent makes payments to the Target shareholders as a result of breach of representations?
Before answering this question, CRA referred first to the tests in s. 87(1) and indicated that it would presume that such payment was made quite some time after the amalgamation, so that this payment therefore would not be normally be made on the amalgamation or be part of the amalgamation. Therefore, the 87(1)(a) condition would be met – all property of the predecessor corporation becomes property of the new corporation by virtue of the amalgamation.
Now turning to s. 87(4), it indicated that the question of whether Parent could benefit from the application of 87(4) is only relevant when Parent owns shares of a predecessor corporation that has an ACB lower than fair market value. The approach was similar to the previous scenario. The payment made quite some time after the amalgamation, regarding bona fide representations and warranties, would not normally be thought of as consideration received for the disposition of shares of a predecessor corporation. It also would not be problematic if the compensation was paid by Parent in the form of issuing additional shares.