Legal Alert: SCC Dodges Questions of Tax Implications of Amalgamation
September 26, 2013
On September 26, 2013 the SCC decided that the amalgamation of two BC credit unions is caught by section 87 of the Income Tax Act. The SCC based its decision on the legislation that applies to credit unions in BC – legislation that does not apply to corporations generally in BC or elsewhere in Canada. In doing so, the SCC dodged the two key legal issues of broader interest to Canadian businesses that the case raised.
Under section 87, when two (or more) corporations merge and their assets, liabilities and shareholders become those of the merged corporation, there is an “amalgamation” for purposes of the Income Tax Act. As a result, the amalgamated corporation inherits all the tax accounts of all amalgamating corporations – including the need to account for capital cost allowance they claimed.
In Envision Credit Union v. Canada, two BC credit unions amalgamated under the BC legislation applicable to credit unions only. Simultaneously with the amalgamation, they transferred some assets to a third corporation. The newly amalgamated credit union (Amalco) argued section 87 did not apply, and it was not required to recognize the capital cost allowance the two predecessor credit unions had claimed before the amalgamation.
The SCC decided that, under the BC credit union legislation, all the predecessors’ assets became Amalco’s assets. Therefore, section 87 applied; Amalco was limited to claiming capital cost allowance on the undepreciated cost of those assets and subject to potential recapture of the capital cost allowance they had claimed.
The SCC’s decision dodged two key legal issues of interest to Canadian businesses:
- Does section 87 apply to all amalgamations? The SCC did not decide whether section 87 would apply as a result of federal and provincial business corporations legislation if the predecessors and Amalco were all corporations subject to such legislation (instead of the credit union legislation).
- If not, does it matter? Avoiding the first question, the SCC did not go on to decide whether, under an amalgamation not subject to section 87, the predecessors’ tax accounts would still flow through to the amalgamated corporation based on the “continuity principle” the SCC established in 1975 (in R. v. Black and Decker Manufacturing).
In the end, the SCC’s decision is based on the wording of the BC credit union legislation – and is little assistance to amalgamating corporations in Canada.
Click here to read the SCC’s decision in Envision Credit Union v. Canada.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Tax Solutions Team to discuss this topic or any other legal issue.
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