OCT 18 1984
R.C. O'Byrne (613) 995-1178
This is in reply to your letter of July 24, 1984 in which you asked for our views on the application of subsection 125(5) of the Income Tax Act (the "Act") in a hypothetical situation.
You have outlined a situation where four companies amalgamate during the latter part of 1964. Each of these companies had a February 29, 1984 year end, and therefore, pursuant to paragraph 87(2)(a) each predecessor corporation will be deemed to have a second taxation year-end during the calendar year immediately before the amalgamation. Each of the predecessor companies was associated during both of these taxation years with a member of an associated group that has only one taxation year ending in the calendar year.
You have expressed the view that the companies involved in the amalgamation would not be precluded by subsection 125(5) from claiming the small business deduction for the taxation year immediately before the amalgamation because a deemed year-end pursuant to paragraph 87(2)(a) is a change made in the usual and accepted fiscal period of the corporation which does not require the concurrence of the Minister. For this reason it is your opinion that the companies would allocate the annual business limit in the manner outlined in paragraph 44 of Interpretation Bulletin 64R2.
We agree with your view.
We trust this is the information you requested.
Yours truly,
for Director Corporate Rulings Division Legislation Branch