An amalgamation of a purchaser corporation and subject corporation can cause the control test in s. 84.1(2.31)(f)(i) or 84.1(2.32)(g)(i) to cease to be met

Although s. 87(2)(j.6) deems the amalgamation of a purchaser corporation and subject corporation to be a continuation of each such predecessor for purposes of inter alia ss. 84.1(2.31)(f)(i) and 84.1(2.32)(g)(i), it does not provide a safe harbour for intergenerational transfers in all cases, as illustrated by the following example.

If a parent sells 51% of the shares of ParentCo to a corporation wholly owned by the parent's child (ChildCo) and 49% of the shares to a corporation wholly owned by an arm's length third party (ThirdCo), then if, in the months following such intergenerational transfer, there is an amalgamation of ChildCo, ThirdCo, and ParentCo, s. 84.1(2.31)(f)(i) and s. 84.1(2.32)(g)(i) will be met both before and after the amalgamation, having regard to the continuity rule in s. 87(2)(j.6), given that the child will control ChildCo before the amalgamation and will control Amalco thereafter.

However, if the parent instead transferred 50% of the ParentCo shares to ChildCo and 50% to ThirdCo, and within 36 months there was an amalgamation, with Amalco owned equally by the child and the third party, those tests would no longer be met because, following the amalgamation, the child did not control Amalco (although before the amalgamation the child controlled ChildCo).

Neal Armstrong. Summary of Patricia Houle and Vincent Dansereau, “Intergenerational Transfer of a Business: Is a Post-Sale Merger Problematic?” Canadian Tax Focus, Vol. 15, No. 3, August 2025, p. 1 under s. 84.1(2.32)(g)(i).