Revenue Canada Revenu Canada Taxation Impôt
Head Office Bureau principal
Your file Votre reference Our file Notre reference H.K. Tilak (613) 957-2122
MAR 31 1989
Dear Sirs:
Re: Winding-up of a Canadian corporation ----------------------------------------
We are writing in response to your letter of March 9, 1989 in which you requested our opinion regarding the application of various provisions of the Income Tax Act (the "Act") to the winding-up of a Canadian corporation in the hypothetical situation described below.
Facts
1. The estate of a deceased individual owns all of the issued shares of a Canadian corporation. The shares have an aggregate fair market value and an aggregate adjusted cost base to the estate of $1,000,000. The aggregate paid-up capital of the shares is $100,000.
2. The estate, as the sole shareholder of the corporation, adopts a resolution approving the liquidation and eventual dissolution of the corporation.
3. The corporation makes a liquidating distribution and distributes all of its assets to the estate. The fair market value of the assets so distributed is $1,000,000.
4. The corporation then applies for a certificate of dissolution under the relevant corporate laws.
5. The certificate of dissolution is obtained and the corporation is dissolved.
You note that, pursuant to subparagraph 54(h)(x) of the Act, all or part of the dividend deemed to have been paid by subsection 84(2) of the Act by the corporation at the time of the liquidating distribution will reduce the estate's proceeds of disposition of the shares. You also note that subparagraphs 88(2)(b)(ii), 54(h)(ix) and 54(c)(i) of the Act may apply at the time of the liquidating distribution to deem the estate to have received proceeds of disposition and to have made a disposition of property at that time. Accordingly, you are concerned that pursuant to these provisions of the Act, the estate may be considered to have disposed of the shares of the corporation for the purposes of the Act at the time of the liquidating distribution, thereby giving rise to a capital loss that may be deemed to be nil by subsection 85(4) or subparagraph 40(2)(g)(i) of the Act because the corporation and the shares will, notwithstanding any such disposition for the purposes of the Act, continue to exist until the certificate of dissolution is issued and the corporation is dissolved.
Generally, it is the Department's view that there is no disposition of the shares of a corporation being dissolved until the certificate of dissolution has been issued and the corporation has been dissolved and there are no reasons to believe that the corporation may thereafter be revived.
However, the Department is prepared to accept that there has been a disposition of the shares of the corporation by a shareholder for the purposes of section 88 of the Act where the corporation has been wound up and the shareholder has received his portion of any final liquidating distribution by the corporation. The Department's views on when a corporation may be considered to have been wound up for the purposes of section 88 of the Act are set out in Interpretation Bulletin IT-126R dated February 3, 1975. Generally, in such circumstances, subparagraph 40(2)(g)(i) and subsection 85(4) of the Act, respectively, will not be applied because the shares of the corporation will not be considered to have been acquired by the shareholder immediately after the disposition or to have been disposed of by the shareholder to the corporation.
These comments with respect to the hypothetical situation described above are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R dated December 18, 1978, are not binding on the Department.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch