Introduction – Amalgamations and GST/HST

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.

Amalgamation Transfers are GST/HST Free

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.

Corporate Identity Post Amalgamation

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.

Canadian Tax Consultant Conclusion – Tax Amalgamations and GST/HST

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.

FAQ’s: GST/HST on Amalgamations – Canadian Tax Consultant Analysis

Under an amalgamation, the new corporation is treated as a person separate from each predecessor for GST/HST purposes. The registration of the new corporation will require a new business number; if you wish to keep one of the existing GST/HST numbers, it is your responsibility to notify the CRA of this intention.
An amalgamation may allow carry-forward losses originating with one company to be applied against sources that may have originated with the other company.
A vertical amalgamation occurs where the merging corporations have a parent-subsidiary relationship. A horizontal amalgamation occurs where the merging corporations are sister corporations (that is, they are owned by the same parent). In any amalgamation, the predecessor companies are combined to form a new amalgamated company, and the predecessor companies cease to exist.
The new corporation's taxable income for the previous will affect the balance-due day of a new corporation formed after an amalgamation. Taxable income will be the total of the predecessor corporations' taxable income for the tax years that ended just before the amalgamation.
"Winding up" is the process of dissolving a company. Once winding up procedures are begun, the business ceases to operate as usual. Its sole purpose becomes to liquidate assets, pay off creditors, and distribute any remaining value to partners or shareholders.
The effective date of amalgamation is the date declared in the certificate of amalgamation or the date of issuance of letters patent for the new corporation. Each predecessor corporation must file a return for the period ending immediately before the effective date of amalgamation.