D. Hartman (613) 957-2120
AUG 12 1988
Dear Sirs:
We are writing in response to your letter of July 7, 1988 in which you requested a technical interpretation of the Income Tax Act (Canada) (the "Act") in the following hypothetical situation.
A corporation, "Parent" and its wholly-owned subsidiary, "Sub" will be amalgamated, pursuant to the British Columbia Company Act (the "Company Act") to form Newco. The amalgamation will fulfill the requirements of subsection 87(1) of the Act. Pursuant to subsection 272(3) of the Company Act shares of Sub, owned by parent will be cancelled for no proceeds of disposition. You are concerned that the application of clause 54(e)(ii)(A), subsection 84(9) and subparagraph 69(1)(b)(i) of the Act will result in the Parent realizing a gain on the shares of Sub.
As stated in paragraph 42 of Interpretation Bulletin IT-474R , it is our view that where one predecessor corporation holds shares of another predecessor corporation, the cancellation of those shares on the amalgamation will not give rise to a gain or loss in the hands of the former corporation.
Chief Corporate Reorganizations II Section Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch