Acquisition of control Flashcards
1
Q
Acquisition of control
A
- With an acquisition of control of a corporation, there is a mandatory recognition of accrued but unrealized losses. Ultimately, there is a reduction on the tax cost of those assets to the fair market value (FMV) on the deemed year-end date.
- To prevent losses from being used prior to the end of the taxation year in which the acquisition of control took place, ITA 249(4) requires that the corporation have a deemed year end on the day preceding an acquisition of control.
- Non-capital losses that were realized before or on the acquisition date can potentially be used after the acquisition date, but only if certain conditions are met and only against specific income. Only non-capital losses from carrying on a same or similar business will be available after the acquisition date.
- Capital losses that were realized before or on the acquisition date are simply lost, and will not be available after the acquisition date.
Reference: ITA 111(4)-(5.5)
