Tax planning for reorganizations and other corporate transactions frequently involve amalgamations. An amalgamation occurs when two or more corporations (known as the “predecessor corporations”) are combined together to create a single corporation (known as the “new corporation”). When setting up a tax plan that includes an amalgamation, it is important to consider all of the tax consequences, including the GST/HST consequences. Our experienced Canadian tax consultants can provide tax help that will enable to you determine the most tax efficient way to reorganize your business and help you to avoid both income tax and GST/HST tax planning traps.
Under the Canadian Excise Tax Act, GST/HST must be paid on all taxable supplies in Canada. A taxable supply is any good or service you normally sell to anyone else for business purposes, in other words to generate revenues or sales. The supplier (vendor) is responsible for collecting the GST/HST tax from the person acquiring the supply (purchaser). The most fundamental tax planning question about amalgamations from a GST/HST perspective is whether the transfer of assets from the predecessor corporations to the new corporation counts as a supply which gives rise to liability under the Canadian Excise Tax Act. Subsection 271(c) of the Canadian Excise Tax Act answers this tax planning question by deeming all transfers of property from the predecessor corporations to the new corporation which occur because of an amalgamation not to be supplies. This means that amalgamations do not give to GST/HST tax payable under the excise tax act. If you need tax help in making sure your tax reorganization is in full compliance with the requirements of the Canadian Excise Tax Act please contact our experienced Canadian GST/HST tax consultants.
While there is a simple answer to whether GST/HST must be paid on the transfers involved in effecting an amalgamation, there is none, there are complexities that arise from the Canadian Excise Tax Act’s treatment of the GST/HST attributes of the new corporation. The combined effect of subsections 271(a) and 271(b) of the Canadian Excise Tax Act is that the Excise Act deems the new corporation to be a separate legal person from each of the predecessor corporations, except for the purposes of particular provisions of the act as listed in subsection 271(b) and the regulations. One consequence of this is that the new corporation does not automatically have a registration number for GST/HST even if one or both of the predecessor corporations are registered for GST/HST. If the new corporation registers for GST/HST, the Canada Revenue Agency will allow the new corporation to register using the GST/HST number of one of the predecessor corporations.
Due to subsection 271(b), for some purposes, the new corporation is considered to be the same corporation as the predecessor corporations. In some circumstances this is beneficial for the new corporation. For example, the new corporation can claim any unclaimed input tax credits or rebates for GST/HST payments made in error that were available to the predecessor corporations. The new corporation is also considered the same corporation as all of its predecessor corporations for the purpose of applying the small supplier rules. It should also be noted that the new corporation will inherit the GST/HST debts of the predecessor corporations and is considered to be identical with its predecessor corporations for the purposes of enforcement actions taken by the CRA. Our top Canadian GST/HST consultants can help you navigate the subtleties of how the Canadian Excise Tax Act affects your business.
Tax amalgamations are a necessary step in many transactions. The transfer of property that takes place during an amalgamation is not a taxable event under the Canadian Excise Tax Act, but that does not mean that amalgamations have no GST/HST consequences. In particular, there are complexities that can arise due to the fact that the Canadian Excise Tax Act considers the new corporation in an amalgamation to be the same corporation as its predecessor for some purposes like claiming input tax credits but not for others like GST/HST registration. If you need tax help about the GST/HST consequences of corporate reorganizations, contact our experienced Canadian GST/HST tax consultants.
Nathaniel completed his Juris Doctor degree at Osgoode Hall Law School where he excelled in the areas of tax law and legal writing and research.He successfully completed all of the requirements of Osgoode’s Taxation Law Curricular Stream
Carson Pillar articled with us and then joined our tax law firm as an associate Canadian tax lawyer having been called to the Ontario bar in June 2016. Carson runs our Calgary tax office. Carson earned his Juris Doctor from Western University and graduated in 2015.
Ian Thomas joined our Toronto tax law firm as an articling student (student at law) in July 2016 and upon becoming a Canadian tax lawyer in June 2017 he becomes our latest tax associate. Ian earned his Juris Doctor from Osgoode Hall Law School and graduated in 2016.
Tigra Bailey has now joined our tax law firm as a summer tax law student and is expected to return as an Articling Student in 2017-2018. Tigra is completing her Juris Doctor at Queen’s University and her expected graduation date is in 2017.
Ildi has joined the law firm of Rotfleisch & Samulovitch PC in June, 2000 and brings over 25 years of legal secretarial experience to the firm. She started as a Legal Secretary and after obtaining Certificates from The Institute of Law Clerks of Ontario
Jamin Chen joins our tax law firm as an articling student in September 2016 after earning his Juris Doctor from Allard Hall at the University of British Columbia.