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Principal Issues: [TaxInterpretations translation] 1. What is the transition time for an amalgamated corporation in a situation where both predecessor corporations have a transition time?
2. What is the purpose of paragraph (a) of the definition of Eligible Pre-2009 Windings-up?
3. What is the purpose of paragraph (b) of the description of element I in paragraph 1 of subsection 48(4) IA?
Position: 1. In this situation, the amalgamated corporation will not have a transition time.
2. General comments.
3. General comments.
Reasons: Legislative analysis.
XXXXXXXXXX 2008-029398
Landry, M. Fisc
April 14, 2010
XXXXXXXXXX ,
Subject: Transitional tax debits and credits
This is in response to your email of September 18, 2008, in which you asked us what the "transition time" of a corporation resulting from an amalgamation would be in a situation where both predecessor corporations had a transition time. You also asked for our comments with respect to eligible pre-2009 winding-ups and with respect to paragraph (b) of the description of element I in paragraph 1 of subsection 48(4) of the Ontario Taxation Act, 2007 (the "Act").
Unless otherwise indicated, all legislative references herein are to the provisions of the Act.
As stated in paragraph 22 of Information Circular 70-6R5, Advance Income Tax Rulings, it is not the practice of the Canada Revenue Agency (CRA) to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should provide all relevant facts and documentation to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments, which we hope you will find helpful. These comments, however, may not apply to your particular situation in certain circumstances.
Transition date of a corporation resulting from an amalgamation
The Act provides, inter alia, that the transition time is the beginning of the corporation's taxation year that includes the beginning of 2009. Consequently, we are of the view that a corporation's transition time will always be between January 2, 2008 and January 1, 2009, whether or not there has been an amalgamation. In addition, the transition time of an amalgamated corporation will be determined based on the period in which the amalgamation took place.
Where the amalgamation took place between January 2, 2008 and January 1, 2009 inclusive, the amalgamated corporation has a transition time that generally corresponds to the date of the amalgamation. In other words, unless it has elected a shortened taxation year end after the amalgamation, the amalgamated corporation will have a taxation year beginning on the amalgamation date somewhere between January 2, 2008 and January 1, 2009 inclusive, which will be its transition time. Pursuant to paragraph 1 of subsection 51(1), the amalgamated corporation in these situations will generally be deemed to be the same corporation as, and a continuation of, each of its predecessor corporations. Consequently, the amalgamated corporation to which paragraph 1 of subsection 51(1) applies will be able to aggregate, under the normal amalgamation rules, all amounts relating to the total federal balance and the total Ontario balance of the predecessor corporations. As a result, the corporation will calculate its total federal balance and its total Ontario balance under subsections 48(4) and (6).
However, where the amalgamation took place on or after January 2, 2009, the amalgamated corporation will not have a transition time since it will not have a taxation year that includes the beginning of 2009. The predecessor corporations will therefore calculate their transitional debits and tax credits on their respective transition times. Where the amalgamation is an eligible amalgamation, paragraph 3 of subsection 51(1) will apply.
Eligible pre-2009 winding-up
An "eligible pre-2009 winding-up" as defined in paragraph (a) of subsection 46(1) is a winding-up of a subsidiary whose "completion time" is after December 31, 2008 and, for the purposes of paragraph 88(1)(e.2) of the Federal Act, the parent corporation’s taxation year during which it received the assets of the subsidiary corporation on the winding-up ended before January 1, 2009. Completion time is defined in subsection 46(1) as the end of the subsidiary corporation’s taxation year during which, for the purposes of paragraph 88(1)(e.2) of the Federal Act, its assets were distributed to its parent corporation on the winding-up. To determine the taxation year-end of a subsidiary on winding-up, see Interpretation Bulletin IT-126R2, Meaning of "Winding-up". Subject to the exceptions described in IT-126R2, the taxation year-end of a subsidiary on winding-up will generally be the date of its formal dissolution.
For example, a winding-up would be an eligible pre-2009 winding-up as defined in paragraph (a) in a situation where a subsidiary with a taxation year-end of April 30, 2009 distributed its assets on December 1, 2008 to its parent with a taxation year-end of December 31, 2008 without obtaining its formal dissolution. Since the subsidiary was not formally dissolved in this example, its completion time will be after December 31, 2008, i.e., April 30, 2009. In addition, the parent's year-end date in which it received the assets will be before January 1, 2009, that is, December 31, 2008, since it received them on December 1, 2008.
The Act provides for this type of winding-up in the definition of eligible pre-2009 winding-up in order to exempt the corporation whose assets were distributed on such winding-up from the application of the transitional tax debits and credits rules. Pursuant to paragraph 5 of subsection 46(5), all corporations whose assets were distributed in the course of an eligible pre-2009 winding-up, in the situation provided for in both paragraph (a) and paragraph (b) of the definition of eligible pre-2009 winding-up, are not specified corporations. Since only specified corporations are subject to the rules relating to transitional tax debits and credits, corporations whose assets were distributed in the course of such a winding-up will therefore not be subject to the transitional tax debits and credits.
In the event of a winding-up under paragraph (a) of the definition of eligible pre-2009 winding-up, the parent will receive the assets of its subsidiary before its transition time and, under the normal winding-up rules, it will have received all amounts relating to the total federal balance and the total Ontario balance of its subsidiary before its transition time. Consequently, the parent will calculate its total federal balance and total Ontario balance at its transition time, which will include amounts transferred by the subsidiary on winding-up.
On the other hand, in the case of a winding-up under paragraph (b) of the definition of eligible pre-2009 winding-up, the parent corporation will receive the assets of its subsidiary after its transition time. Since its total federal balance and total Ontario balance will already have been determined at its transition time, subsections 51(6) and (7) determine the amounts of the subsidiary's total federal balance and total Ontario balance and include them in the parent's total federal balance and total Ontario balance.
Paragraph (b) of the description of I in paragraph 1 of subsection 48(4) of the Act
Where an Ontario corporation will have a higher federal scientific research and experimental development ("SR&ED") expenditure balance than for Ontario, it will generally be possible to defer the portion of the transitional debits attributable to its federal SR&ED balance. Paragraph (b) of the description of I of paragraph 1 of subsection 48(4) provides for an election to allow a corporation that satisfies certain criteria to exclude all or part of its federal SR&ED balance from its total federal balance and thus defer the portion of the transitional debits attributable to its federal SR&ED balance.
Best regards,
Louise J. Roy, CGA
Manager
for the interim Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
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