A dissolution can be achieved in various fashions, including voluntarily, involuntarily, and by means of court order.However, because of the unique complications involved in applying subsection 88(1) to involuntary or court order dissolutions, this paper will generally assume that the subsidiary is being wound up under the voluntary dissolution provisions of the provides for voluntary dissolution in three sets of circumstances.
One of the most significant forms of corporate reorganization safeguarded by these rollovers is the "winding-up" or liquidation of a subsidiary corporation into its parent company.
Since the parent typically transfers property to the baby upon its creation, the parent would generally expect that upon its dissolution the subsidiary would be allowed to transfer its remaining property back to the parent without significant tax implications.
Regardless of the exact route taken by a corporation to achieve voluntary dissolution, once the prescribed procedure has been completed, including the filing of articles of dissolution with the Director, the Director is obligated to send to it a certificate of dissolution.
The following analysis of the tax implications of subsection 88(1) is organized into seven parts: eligibility for rollover, general rules, shares of the subsidiary, property of the subsidiary, liabilities of the subsidiary, losses of the subsidiary, and minority shareholders.
Subsection 88(1) of the governs such a situation, permitting the winding-up of a subsidiary into its parent corporation company on a tax-free rollover basis, if certain pre-requisite conditions are satisfied.
The intent of this report is two-fold: The paper is divided into six sections, including this introduction.Yet, regardless of differences in motivation and mechanics, corporate reorganizations are almost always characterized by a transfer of property between taxpayers, a transfer which is generally caught by the deemed disposition rule of the This principle holds that where a taxpayer disposes of property to a person with whom he or she does not deal at arm's length, the taxpayer is deemed to have received proceeds of disposition equal to the fair market value of the property.Therefore, the application of the deemed disposition rule to a reorganization of business affairs has the potential to generate taxable gains.However, it is common for the final certificate of dissolution to not be obtained until after the subsidiary's business has effectively been terminated.To resolve this potential uncertainty, Revenue Canada issued a statement indicating that it considers a corporation to be wound up for the purpose of subsection 88(1) without the completion of the formal dissolution of the corporation, so long as there is "substantial evidence that it will be dissolved within a short period of time." Revenue Canada will also accept that subsection 88(1) applies where a corporation is not dissolved in a particular year because of the existence of outstanding litigation, provided that four conditions are met.Based on this interpretation of the timing issue, however, it is conceivable that a parent corporation could own 90 percent of a subsidiary's shares immediately prior to the commencement of the winding-up, and then reduce its level of ownership below 90%, without disqualifying itself from the application of subsection 88(1).