K.B. Harding (613) 957-2129
JUL 18 1988
Dear Sirs:
This is in reply to your letter of March 24, 1988 wherein you requested our opinion whether the merged company, in the following hypothetical situation, would be considered as a resident of Canada.
1. Company (ACo) was organized under the laws of British Columbia.
2. After November 12, 1981, ACo was continued first into the jurisdiction of Alberta and then was continued under the jurisdiction of the State of Delaware and became referred to as A DelawareCo.
3. A DelawareCo then merged with a newly created California subsidiary of A DelawareCo and the "surviving corporation" was the newly incorporated California subsidiary. ACo. legally ceased to exist and the California subsidiary remained in existence.
4. Prior to the merger, the mind, management and control of A DelawareCo would have vested with United States residents and the principal officers of the company, who were also U.S. residents at the time of the merger.
5. It is your view that there was no disposition of shares on the continuation of ACo into Delaware. However, it is your view, on the merger between A DelawareCo and its California subsidiary that the shareholders resident in Canada will be considered to have disposed of their shares of A DelawareCo within the meaning of paragraph 54(c) of the Income Tax Act (Act).
You have questioned whether subsection 87(8) of the Act has application in the case of the merger of A DelawareCo and its California subsidiary in view of the words "resident in a country other than Canada". You requested our opinion whether the words in quotation, immediately above, means "not resident in Canada" or whether it means that A DelawareCo must be resident in a jurisdiction other than Canada, whether or not it is also resident in Canada.
It is our opinion that subsection 87(8) of the Act will apply to the merger described above provided all the other conditions of that subsection and subsection 87(8.1) have been met. In addition, we are of the view that the "surviving Corporation" resulting from the merger between A DelawareCo and its California subsidiary will not be deemed to be a resident of Canada pursuant to subsection 250(4) of the Act. We are also of the view that section 88.1 and 219.1 of the Act would have application when ACo is continued under Delaware Corporate law.
These comments represent our opinion of the law as it generally applies. As indicated in paragraph 24 of Information Circular 70-6R, dated December 18, 1978, this opinion is not binding on Revenue Canada, Taxation.
We trust these comments will be suitable for your purposes.
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch