Chapter 27: Acquisition of Control

Question 1

When does an acquisition of control event occur?

Answer 1

Occurs when more than 50% of the votes to elect the Board of Directors are held.

Note: A change in control is not the same as an acquisition of control - there has to be one shareholder, or association of shareholders that have more than 50% of the votes

Question 2

What occurs when there is an acquisition of control?

Answer 2

1) Deemed year end
2) Restrictions on Losses
3) Deemed disposition event

Question 3

What is a deemed year end?

Answer 3

There is a deemed year-end immediately before the acquisition of control.

If this does not coincide with the fiscal year of the acquired corporation, there will be two taxation years in one fiscal period.
a) Tax return will ahve to be filed for the taxation year ending at the deemed year end
b) unpaid amounts need to be reviewed
c) charitable donations with respect to 75% of net income limitation will have to be reviewed
d) CCA and cumulative eligible capital (CEC) will ahve to be pro-rated for the number of days in the taxation year.

Question 4

Restriction on Losses

Answer 4

Losses are triggered at year-end:

Assets with accrued losses are deemed to be triggered as well

Non-capital losses (ABIL, property losses, Farm losses) expire on acquisition and removed from the non-capital loss. You can only carry forward if you continue with the same business and expect to have earnings in the next few years.

Capital losses: These expire on control and cannot be carried forward.

Note: To use up the losses that expire, consier triggerin capital gains or recapture of assets.
Note: Only business losses can be carried forward (with conditions), capital losses, ABILs, and property losses are all gone

Question 5

Summary: What are the items that we need to consider?

Answer 5

1) Tax returns need to filed at the deemed year end
2) short taxation year: CCA, SBD, etc will need to be prorated
3) unpaid amounts - management bonuses must be paid within required time frame
4) short taxation yera counts as one fiscal year and removed one year for loss carryoforward limits
5) Charitable donation limits may also be limited