The legislation enacting ss. 18.2 and 18.21 allows a taxpayer to elect to calculate its excess capacity for each of the three taxation years (the pre-regime years) immediately preceding its first taxation year (the first regime year) in respect of which the EIFEL rules apply. Where there have been amalgamations or winding-ups in the pre-regime years, or the first regime year, do the deeming rules in s. 87(2.1)(a.1) or subsection 88(1.11) apply to take into account the pre-regime “excess capacity otherwise determined” and “excess interest” of the predecessor corporations for the purposes of determining the “net excess capacity” of the amalgamated corporation or parent corporation, and the “group net excess capacity” in respect of such amalgamated or parent corporation, as well as in determining the same amounts for other taxpayers in respect of which the particular taxpayer is an eligible pre-regime group entity?
CRA indicated, respecting amalgamations, that s. 87(2.1)(a.1) (when read together with s. 87(2.1)(d)) provides continuity treatment in respect of the various amounts that are relevant in computing the taxpayer’s cumulative unused excess capacity. Although s. 87(2.1)(a.1) does not contain a specific reference to terms used in the transitional rules, the balances described in the transitional rules are modified descriptions of the balances described in s. 87(2.1)(a.1).
Accordingly, s. 87(2.1)(a.1) should provide a similar continuity treatment for the balances of the predecessor corporations in the transitional period for a corporation that would be formed on an amalgamation.