For various reasons, it may be desirable to consolidate two corporate entities for various reasons. Share structure simplification, loss utilization, interest deductibility, synergy realization are just some examples.
Provided certain criteria are met, Subsection 87 of the Income Tax Act allows for the tax-free amalgamation of corporate entities. In general terms, if following an amalgamation, all the assets and liabilities of the predecessor corporations become the assets and liabilities of the newly amalgamated corporation, and all the previous shareholders receive shares in the newly amalgamated corporation, the conditions for a tax-free rollover can be met.
In addition, to the tax consequences of an amalgamation, there are practical considerations. For example, employees will now be contracted by an amalgamated entity which can result in one off additional payroll filings.
Ensuring the amalgamated entity has the right accounting expertise will help ensure correct underlying accounting records and lead to a smoother transition.
Robert Ng, CPA Professional Corporation is an independent tax accountant operating in London, Ontario. Contact us today for assistance with your corporate tax.
Contact us today for assistance with your corporate tax.