The Tax Effects of Corporate Reorganizations

May 31, 2013 Published by
Post Categories: Financial Performance • Tax Accounting

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.