April 28, 1992
| Toronto District Office | Corporate |
| P. St-Laurent | Reorganizations III |
| Chief of Audit | S. Leung |
| (613) 957-2115 |
Attention: H. W. Helfand
912857
24(1)
As requested during our telephone conversation of April 22, 1992 (T. Harris/H. Helfand) we are writing to provide our comments with respect to the winding-up of 24(1)
Background
24(1)
24(1)
We advised the taxpayer's representatives that we would be unable to give this ruling since it is not our practice to provide advance rulings with respect to completed transactions. We also advised them that we would have some difficulty accepting that 24(1) can be considered to have been "wound up" on December 30, 1990 if it were to subsequently reacquire the real estate and issue additional shares as consideration therefor.
During our discussions the taxpayer's representatives sought our reaction to whether the Department could accept that 24(1) was wound up for purposes of the Act on December 30, 1990 if it was not dissolved but was kept in existence merely to hold legal title to the real estate until such time as 24(1) ultimately disposed of it. We advised them that since their request related to a completed transaction any decision to accept such an arrangement would have to be made by officials of the appropriate District Taxation Office. We did, however, agree to make enquiries on their behalf.
In paragraph 5 of Interpretation Bulletin IT-126R it is stated that "(w)here the formal dissolution of a corporation is not complete but there is substantial evidence that the corporation will be dissolved within a short period of time, for the purpose of section 88 the corporation is considered to have been wound up. Evidence confirming the proposed dissolution would generally include an application for dissolution or for surrender of the corporation's charter made under the incorporating statute and evidence that the requirements for dissolution, as outlined in paragraph 4 above, have been met." Although the IT indicates that the filing of an application for dissolution is generally required as evidence that the corporation will be wound up in a short period of time we have relaxed this requirement since in most jurisdictions articles of dissolution will be issued within a few days of the application. Consequently, to insist that an application for dissolution be filed will render the administrative concession in paragraph 5 of the IT meaningless. For example, we have recently provided an advance ruling that a company will be considered to have been wound up at the time that its property was distributed to its parent even though the formal dissolution may be delayed for several years due to a number of outstanding lawsuits. We confirmed that subsection 88(1) will apply in the taxation year that all of the property of the subsidiary ("Subco") was distributed to its parent on the winding-up of Subco provided that:
0all of Subco's assets and liabilities (other than its rights and obligations under the outstanding lawsuits that cannot be transferred without prejudice to Subco) are distributed to or assumed by its parent company prior to the end of the year;
0the sole reason for the delay in obtaining the formal dissolution is the existence of the outstanding litigation;
0Subco does not own or acquire any property or carry on any activity or undertaking (other than such activity as may be required to pursue the litigation) after the distribution of assets and prior to the formal dissolution; and
0Subco is formally dissolved within a reasonable time following the resolution of the outstanding litigation.
24(1)
we believe that it would be reasonable to consider 24(1) to have been wound up for purposes of section 88 of the Act on 24(1) provided that
(i) the only reason for the continuing existence of 24(1) is to hold the legal title to the real property in question;
(ii) 24(1) will not own or acquire any property or incur any liabilities, or engage in or carry on any activity or undertaking other than the holding of the legal title to the real property;
(iii) 24(1) will not dispose of the outstanding shares of 24(1) to any other person; and
(iv) 24(1) will be dissolved immediately after the legal title to the real property that it holds has been conveyed to another person.
24(1)
As requested, we enclose herewith a copy of the original ruling request submitted on behalf of 24(1) for your reference.
Please do not hesitate to contact us should you require any further information or assistance in this matter.
ChiefCorporate Reorganizations Section IIIReorganizations and Foreign DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch