The Tax Effects of Corporate Reorganizations
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Corporate restructuring always trigger a domino effect that can be felt in every aspect and every division of your company.
The tax consequences can seem daunting, but they can also be deferred or possibly avoided with an appropriate planning strategy.
H2: Here are the most common types of corporate reorganizations and their consequences/ requirements:
Type of Reorganization
Attributes | Convertible Property and Debt Obligations | Transfer of Property to a corporation | Share-for-share exchange | Reorganization of Capital s | Amalgamation | Windups |
| Filing of Election is Required | No | Yes | No | No | No | No |
| Deemed Year End | n/a | n/a | n/a | n/a | Yes | No |
| Loss Utilization and Rollover of Tax Attributes | n/a | n/a | n/a | n/a | Yes (1) | Yes (1) |
| Transferee/ Predecessor to be a Canadian Corporation | No | Yes | No | No | Yes | Yes |
| Adjusted Cost Base Bump | n/a | n/a | n/a | n/a | Yes (2) | Yes |
| Application of Anti-gifting or Anti- avoidance Provisions | Yes | Yes (3) | No | Yes | Yes | Yes |
| May Establish Proceeds of Disposition | No | Yes | Yes | No | n/a | n/a |
| Exchanged Shares Must be Capital Property | Yes | No | Yes | Yes | n/a | n/a |
| Disposition of all Shares of a Class Requirement | No | No | No | Yes | n/a | n/a |
| Possibility of Receipt of a Non-share Consideration | No | Yes | No | Yes | n/a | n/a |
| Part of Reorganization of Capital | No | No | No | Yes | n/a | n/a |
| Ordering Rules for Share Consideration Allocations | Pro Rata Basis | Yes | n/a | Pro Rata Basis | n/a | n/a |
| Arm’s Length Requirement | No | No | Yes | No | n/a | n/a |
| Vendor Not to Control Purchaser Requirement | No | No | Yes | No | n/a | n/a |
Notes:
(1) Only in certain situations and (or) to a certain entity
(2) Only in a wholly owned subsidiary situation
(3) Exceptions may apply for wholly owned corporations
This summary provides general information only and does not constitute professional advice. Please contact our firm for any specific advice with respect to a particular situation.