What is an amalgamation?
When top Canadian tax lawyers amalgamate two or more corporations as defined in subsection 87(1) of the Income Tax Act, paragraph 87(2)(a) of the Tax Act deems a new corporation to have been created for taxation purposes. These amalgamations are known as "qualified amalgamations" and will generally obtain better tax treatment than a non-qualified amalgamation. The corporations involved in the amalgamation will need to separately ensure all proper changes with the corporate registrar are made.
The amalgamation will be given an "effective date of amalgamation". In most cases, the certificate of amalgamation from the corporate registrar will determine this date. If the certificate does not specify a date, the CRA will determine a date based on the circumstances of the amalgamation. Each corporation involved in the amalgamation is deemed to have its tax year end immediately before amalgamation. The CRA may allow a corporation to extend its tax year by a few days instead of creating a very short tax year, so long as the corporation would still have a tax year ending in the calendar year. For example, if the corporation's tax year ends December 15th, it may be permitted to extend its tax year when the effective date of amalgamation is December 31st but not when it is January 1st. Where a corporation is acquired, thereby triggering a year end, and then amalgamated, or where there are successive amalgamations, this deemed year-end issue becomes more complex.
The amalgamation will trigger a series of tax impacts as the corporations are wound together. These are outside the scope of this article but are further explained in our article Corporate Amalgamation Under Income Tax Act Section 87. Corporations considering an amalgamation should seek a tax consultation with one of our experienced Canadian tax lawyers.
Business Numbers and Amalgamation
Each corporation in Canada has an assigned business number. This is an unique identifier which is used by the corporation to identify itself as it files income tax, payroll and GST/HST returns, and in general in the corporation's dealings with the Canada Revenue Agency ("CRA"). A business number is akin to a social insurance number for individuals. When corporations amalgamate, they generally will no longer require a business number for each of the predecessor corporation. In these cases, the corporation resulting from the merger or amalgamation will want to close unused business numbers.
Once corporations amalgamate, they must provide the CRA with either the certificate of amalgamation or a court order as proof of the amalgamation. Each corporation involved must also file income tax returns for the impacted tax year end and indicate on their return that it is the final return before amalgamation or first return following amalgamation as appropriate. The new amalgamated corporation will either be given a new business number or the corporation can request to continue use of the business number of a predecessor corporation. If there are GST/HST program accounts which will no longer be used as a result of the amalgamation, the corporations must separately file to close these accounts. GST/HST returns must be filed up to the effective date of amalgamation and the date of deregistration, though normally these will be the same date.
Once all requests are submitted to the CRA, the CRA will make necessary changes to all accounts involved. Corporations may be expected to file unfiled tax returns or pay outstanding tax balances in order to close accounts.
Pro Tax Tips - The Dangers of Unused Business Numbers
The CRA expects an annual income tax return for each corporation from the time of the corporation's inception until the CRA is informed that the corporation no longer exists or is no longer liable for taxes in Canada. Similarly, if the corporation is registered for the payroll or GST/HST programs, the CRA will also expect returns based on the corporation's filing frequency in regards to these taxes.
If a corporation fails to file the required return, the CRA may issue an arbitrary or notional tax assessment. An arbitrary tax assessment is the CRA's estimation of what the corporation owes in taxes based on what it should have filed in its tax return for the year. Once the arbitrary tax assessment is issued, it is legally enforceable, CRA collection officers will pursue the debt. While a taxpayer can contest an arbitrary assessment by notice of objection or filing a return, the CRA is not required to accept any tax returns filed for the same reporting period as the arbitrary tax assessment relates to. Generally, arbitrary tax assessments result in higher taxes than what would have resulted if the corporation had filed a return. The arbitrary assessment could also lead to derivative assessments, rendering persons related to the corporation liable for its unpaid taxes.
If a corporation is no longer operating, the corporation should consider either filing nil returns or closing the business number accounts to avoid arbitrary tax assessments. Our experienced Canadian tax lawyers can advise on what solution makes the most sense for your corporation, and assist in contesting any arbitrary tax assessments which may have been issued.
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.