1 September 1989 Income Tax Severed Letter AC58410 - Amalgamation

19(1)                                        5-8410
                                             J.E. Harms
                                             (613)957-2109

September 1, 1989

Dear Sirs:

Re: Amalgamation Application of section 256 of the Income Tax Act (the "Act") as enacted by S.C. 1988, c. 55, (former Bill C-139) s. 192

We are writing in response to your letter of July 25, 1989 in which you requested our opinion as to whether section 256 would apply to cause certain corporations to be associated for the 1989 taxation year in the situation illustrated in the example which follows:

1.        Corporations A, B and C were associated prior to the
          amalgamation of Corporation A and B as outlined below.

2.        Corporation B was the parent of Corporation C and
          Corporation A was the parent of corporation B prior to
          the said amalgamation.

3.        For administrative reasons Corporations A and B
          amalgamated on March 31, 1988 to form Amalco.

4.        Corporation D will be associated with Corporation C and
          Amalco under the new associated corporation rules (the
          "New Rules") contained  in section 256 of the Act as
          enacted by S.C. 1988, c. 55, S. 192 and we assume that
          it would not be so associated under section 256 prior
          to the coming into force of the New Rules.

5.        The year end for Corporations A and B prior to the
          amalgamation was March 31.  The year end for
          Corporation C and Amalco is March 31.  The year end of
          Corporation D is January 31.

It is your view that, as there had been no attempt to change the year end of Corporations A and B upon their amalgamation, the New Rules should not be applicable for the 1989 taxation year of Corporations C and D and Amalco in this example.

We do not concur with your view. The coming-into-force provision in subsection 192(6) of S.C. 1988, c. 55 provides, in effect, that the New Rules are applicable for the purpose of determining whether two ar more corporations are associated with each other, to the 1989 and subsequent taxation years in a situation where "at least one of such corporations was incorporated, or was formed as a result of an amalgamation, after February 10, 1988... In the above example, Amalco was formed as a result of an amalgamation after February 10, 1988 and, therefore, based on the plain meaning of the words of the coming-into-force provision referred to above, Amalco, Corporation C and Corporation D would be associated for their 1989 taxation year.

although in this example the amalgamation did not occur for tax reasons and there was o effort to extend the period that he corporations would be subject to the existing associated corporation rules, the New Rules would be applicable for the 1989 taxation year. As enacted, the coming-into-force provision does not make the application of the New Rules for the 1989 taxation year as a result of an amalgamation occurring after February 10, 1988 subject to the satisfaction of any purpose test or other conditions relating to the amalgamation.

The foregoing expression of opinion is provided in accordance with the practice referred to in paragraph 24 of Information Circular 70-6R published by Revenue Canada, Taxation on December 18, 1978.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch