P. Mason (613) 957-210?
November 17, 1987
Dear Sirs:
Re: Paragraph 87(2)(1l) of the Income Tax Act (the "Act") flow through of capital gains reserve and amalgamation
In your letter of August 17, 1987, you requested our views on the availability of a reserve pursuant to subparagraph 40(1)(a)(iii) of the Act where property was disposed of by a predecessor of a predecessor corporation. Predecessor corporation is defined for purposes of section 87 in subsection 87(1) of the Act.
Paragraph 87(2)(a) of the Act deems the corporation formed as a result of the first amalgamation, Amalco 1, to be a new corporation for the purposes of the Act. Paragraph 87(2)(11) of the Act deems Amalco 1 to be "... the same corporation as, and a continuation of, the predecessor ..." in respect of the disposition of the property by the predecessor, for purposes of computing the paragraph 40(1)(a)(iii) reserve of Amalco 1. Paragraph 87(2)(11) of the Act does not deem Amalco 1 to have disposed of the property. When Amalco 1 amalgamates with another corporation to form Amalco 2, paragragh 87(2)(a) of the Act deems Amalco 2 to be another new corporation. No amount of a reserve pursuant to subparagraph 40(1)(a)(iii) of the Act may be claimed by Amalco 2 in respect of the disposition by Amalco 1's predecessor, since the requirement of paragraph 87(2)(11) of the Act that the property be disposed of by a predecessor of Amalco 2 will not be met.
Our comments here are opinions and not rulings, as explained in paragraph 24 of Information Circular 70-6R.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch