Acquiring control of another company has several tax
consequences, many of which are potentially adverse for the
acquiring party. It is important to consider them early on in the
Generally, an acquisition of control occurs when a person or
entity acquires sufficient shares of a company so that they have
the right to a majority of the votes in an election of the
company's board of directors. The Income Tax Act does
not define "control", but it may be:
De jure: where the controlling party controls
sufficient shares based on the company's share register,
constating documents, or any unanimous shareholder agreement;
De facto: where, in some other way, a party has the
ability to effect a significant change in the board of directors or
the powers of the board of directors, or an ability to directly
influence the shareholders who elect the board.
Most of the tax consequences for acquisitions of control are
based on the acquisition of de jure control. Some of the
more important ones are:
The tax year of a corporation is deemed to have ended
immediately prior to the time control is acquired. The corporation
must file a return for that year;
Corporations cannot deduct non-capital loss carry forwards
unless the business that gave rise to the loss is carried on by the
corporation for a profit or with a reasonable expectation of
profit. Even then, the losses are deductible only against the
corporation's income from the same or a similar business;
A corporation's net capital loss carry forwards expire;
Important capital loss consequences may apply. For instance,
capital losses cannot be carried forward. Elections are available
to help ensure these losses are used.
Tax planning can therefore play an important role in the
acquisition of control of a corporation and deserves early
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The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
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