D, Holtz (613) 993-6201
November 1, 1985
Dear Sirs:
Re: Subsection 87(7) of the Income Tax Act
This is in reply to your letter of August 23, 1985 wherein you requested clarification of our interpretation of the above subsection of the Act as expressed in our letter of June 24, 1985.
In your first letter of April 8, 1985 you posed the following hypothetical situation:
"Corporation A is the parent of Corporation B and owns 100% of the outstanding shares of Corporation B. Corporation C is the creditor under a promissory note payable by Corporation B. Corporation B is to be wound-up into Corporation A under the provisions of sub- section 88(1) of the Act and the debt payable by B to C will be assumed by Corporation A."
Our reply of June 24, 1985 stated our view that the provisions of subsection 87(7) of the Act, made applicable on the wind-up by virtue of paragraph 88(1)(e.2) of the Act, will apply so that, subject to section 78 of the Act, the provisions of the Act will not apply in respect of the transfer of the debt on the wind-up, provided that the creditor (Corporation C) is not a subsidiary of Corporation A.
The reason for the above proviso is our interpretation of the phrase "other than any such debt or other obligation owed to any other predecessor corporation" as used in paragraph 87(7)(a) of the Act. When made applicable on a wind-up by virtue of paragraph 88(1)(e.2) the phrase becomes "other than any such debt or other obligation owed to any other subsidiary", thereby excluding the application of subsection 87(7) if Corporation C is a subsidiary of Corporation A.
Yours truly,
Chief Corporate Reorganizations Section Specialty Corporations Rulings Division Corporate Rulings Directorate Legislative and Intergovernmental Affairs Branch