VIII, s. 38]
(iii)in the case of any other property, the cost amount to the subsidiary of the property immediately before the winding-up;
(a.1)each property of the subsidiary that was distributed to the parent on the winding-up shall, for the purpose of paragraph 88(2.1)(b) or 88(2.1)(e), be deemed not to have been disposed of;
(a.2)each interest of the subsidiary in a partnership that was distributed to the parent on the winding-up shall, except for the purpose of paragraph 98(5)(g), be deemed not to have been disposed of by the subsidiary;
(a.3)where
(i)the subsidiary was a financial institution in its taxation year in which its assets were distributed to the parent on the winding up, and
(ii)the parent was a financial institution in its taxation year in which it received the assets of the subsidiary on the winding up,
each specified debt obligation (other than a mark-to-market property) of the subsidiary that was distributed to the parent on the winding-up shall, except for the purpose of subsection 69(11), be deemed not to have been disposed of, and for the purpose of this paragraph,financial institution,mark-to-market propertyandspecified debt obligationhave the meanings assigned by subsection 142.2(1);
(b)the shares of the capital stock of the subsidiary owned by the parent immediately before the winding-up shall be deemed to have been disposed of by the parent on the winding-up for proceeds equal to the greater of
(i)the lesser of the paid-up capital in respect of those shares immediately before the winding-up and the amount determined under subparagraph 88(1)(d)(i), and
(ii)the total of all amounts each of which is an amount in respect of any share of the capital stock of the subsidiary so disposed of by the parent on the winding-up, equal to the adjusted cost base to the parent of the share immediately before the winding-up;
(c)subject to paragraph 87(2)(e.3) (as modified by paragraph 88(1)(e.2)), and notwithstanding paragraph 87(2)(e.1) (as modified by paragraph 88(1)(e.2)), the cost to the parent of each property of the subsidiary distributed to the parent on the winding-up shall be deemed to be
(i)in the case of a property that is an interest in a partnership, the amount that but for this paragraph would be the cost to the parent of the property, and
(ii)in any other case, the amount, if any, by which
(A)the amount that would, but for subsection 69(11), be deemed by paragraph 88(1)(a) to be the proceeds of disposition of the property
exceeds
(B)any reduction of the cost amount to the subsidiary of the property made because of section 80 on the winding-up,
plus where the property was a capital property (other than an ineligible property) of the subsidiary at the time that the parent last acquired control of the subsidiary and was owned by the subsidiary thereafter without interruption until such time as it was distributed to the parent on the winding-up, the amount determined under paragraph 88(1)(d) in respect of the property and, for the purposes of this paragraph,ineligible propertymeans
(iii)depreciable property,
(iv)property transferred to the parent on the winding-up where the transfer is part of a distribution (within the meaning assigned by subsection 55(1)) made in the course of a reorganization in which a dividend was received to which subsection 55(2) would, but for paragraph 55(3)(b), apply,
(v)property acquired by the subsidiary from the parent or from any person or partnership that was not (otherwise than because of a right referred to in paragraph 251(5)(b)) dealing at arm’s length with the parent, or any other property acquired by the subsidiary in substitution for it, where the acquisition was part of the series of transactions or events in which the parent last acquired control of the subsidiary, and
(vi)property distributed to the parent on the winding-up where, as part of the series of transactions or events that includes the winding-up,
(A)the parent acquired control of the subsidiary, and
(B)any property distributed to the parent on the winding-up or any other property acquired by any person in substitution therefor is acquired by
(I)a particular person (other than a specified person) that, at any time during the course of the series and before control of the subsidiary was last acquired by the parent, was a specified shareholder of the subsidiary,
(II)2 or more persons (other than specified persons), if a particular person would have been, at any time during the course of the series and before control of the subsidiary was last acquired by the parent, a specified shareholder of the subsidiary if all the shares that were then owned by those 2 or more persons were owned at that time by the particular person, or
(III)a corporation (other than a specified person or the subsidiary)
1of which a particular person referred to in subclause 88(1)(c)(vi)(B)(I) is, at any time during the course of the series and after control of the subsidiary was last acquired by the parent, a specified shareholder, or
2of which a particular person would be, at any time during the course of the series and after control of the subsidiary was last acquired by the parent, a specified shareholder if all the shares then owned by persons (other than specified persons) referred to in subclause 88(1)(c)(vi)(B)(II) and acquired by those persons as part of the series were owned at that time by the particular person;
(c.1)[Repealed, 2016, c. 12, s. 28]
(c.2)for the purposes of this paragraph and subparagraph 88(1)(c)(vi),
(i)specified person, at any time, means
(A)the parent,
(B)each person who would be related to the parent at that time if
(I)this Act were read without reference to paragraph 251(5)(b), and
(II)each person who is the child of a deceased individual were related to each brother or sister of the individual and to each child of a deceased brother or sister of the individual, and
(C)if the time is before the incorporation of the parent, each person who is described in clause (B) throughout the period that begins at the time the parent is incorporated and ends at the time that is immediately before the beginning of the winding-up,
(i.1)a person described in clause (i)(B) or (C) is deemed not to be a specified person if it can reasonably be considered that one of the main purposes of one or more transactions or events is to cause the person to be a specified person so as to prevent a property that is distributed to the parent on the winding-up from being an ineligible property for the purposes of paragraph (c),
(ii)where at any time a property is owned or acquired by a partnership or a trust,
(A)the partnership or the trust, as the case may be, shall be deemed to be a person that is a corporation having one class of issued shares, which shares have full voting rights under all circumstances,
(B)each member of the partnership or beneficiary under the trust, as the case may be, shall be deemed to own at that time the proportion of the number of issued shares of the capital stock of the corporation that
(I)the fair market value at that time of that member’s interest in the partnership or that beneficiary’s interest in the trust, as the case may be,
is of
(II)the fair market value at that time of all the members’ interests in the partnership or beneficiaries’ interests in the trust, as the case may be, and
(C)the property shall be deemed to have been owned or acquired at that time by the corporation,
(iii)in determining whether a person is a specified shareholder of a corporation,
(A)the reference in the definitionspecified shareholderin subsection 248(1) to “the issued shares of any class of the capital stock of the corporation or of any other corporation that is related to the corporation” shall be read as “the issued shares of any class (other than a specified class) of the capital stock of the corporation or of any other corporation that is related to the corporation and that has a significant direct or indirect interest in any issued shares of the capital stock of the corporation”,
(A.1)a corporation controlled by another corporation is, at any time, deemed not to own any shares of the capital stock of the other corporation if, at that time, the corporation does not have a direct or an indirect interest in any of the shares of the capital stock of the other corporation,
(A.2)the definitionspecified shareholderin subsection 248(1) is to be read without reference to its paragraph (a) in respect of any share of the capital stock of the subsidiary that the person would, but for this clause, be deemed to own solely because the person has a right described in paragraph 251(5)(b) to acquire shares of the capital stock of a corporation that
(I)is controlled by the subsidiary, and
(II)does not have a direct or an indirect interest in any of the shares of the capital stock of the subsidiary, and
(B)a corporation is deemed not to be a specified shareholder of itself, and
(iv)property that is distributed to the parent on the winding-up is deemed not to be acquired by a person if the person acquired the property before the acquisition of control referred to in clause (c)(vi)(A) and the property is not owned by the person at any time after that acquisition of control;
(c.3)for the purpose of clause 88(1)(c)(vi)(B), property acquired by any person in substitution for particular property or properties distributed to the parent on the winding-up includes
(i)property (other than a specified property) owned by the person at any time after the acquisition of control referred to in clause (c)(vi)(A) more than 10% of the fair market value of which is, at that time, attributable to the particular property or properties, and
(ii)property owned by the person at any time after the acquisition of control referred to in clause 88(1)(c)(vi)(A) the fair market value of which is, at that time, determinable primarily by reference to the fair market value of, or to any proceeds from a disposition of, the particular property or properties
but does not include
(iii)money,
(iv)property that was not owned by the person at any time after the acquisition of control referred to in clause 88(1)(c)(vi)(A),
(v)property described in subparagraph 88(1)(c.3)(i) if the only reason the property is described in that subparagraph is because a specified property described in any of subparagraphs 88(1)(c.4)(i) to 88(1)(c.4)(iv) was received as consideration for the acquisition of a share of the capital stock of the subsidiary in the circumstances described in subparagraphs 88(1)(c.4)(i) to 88(1)(c.4)(iv),
(vi)a share of the capital stock of the subsidiary or a debt owing by it, if the share or debt, as the case may be, was owned by the parent immediately before the winding-up, or
(vii)a share of the capital stock of a corporation or a debt owing by a corporation, if the fair market value of the share or debt, as the case may be, was not, at any time after the beginning of the winding-up, wholly or partly attributable to property distributed to the parent on the winding-up;
(c.4)for the purposes of subparagraphs 88(1)(c.3)(i) and 88(1)(c.3)(v), a specified property is
(i)a share of the capital stock of the parent that was
(A)received as consideration for the acquisition of a share of the capital stock of the subsidiary by the parent or by a corporation that was a specified subsidiary corporation of the parent immediately before the acquisition, or
(B)issued for consideration that consists solely of money,
(ii)an indebtedness that was issued
(A)by the parent as consideration for the acquisition of a share of the capital stock of the subsidiary by the parent, or
(B)for consideration that consists solely of money,
(iii)a share of the capital stock of a taxable Canadian corporation that was received as consideration for the acquisition of a share of the capital stock of the subsidiary by the taxable Canadian corporation or by the parent where the parent was a specified subsidiary corporation of the taxable Canadian corporation immediately before the acquisition,
(iv)an indebtedness of a taxable Canadian corporation that was issued by it as consideration for the acquisition of a share of the capital stock of the subsidiary by the taxable Canadian corporation or by the parent where the parent was a specified subsidiary corporation of the taxable Canadian corporation immediately before the acquisition, and
(v)if the subsidiary was formed on the amalgamation of two or more predecessor corporations at least one of which was a subsidiary wholly-owned corporation of the parent,
(A)a share of the capital stock of the subsidiary that was issued on the amalgamation and that is, before the beginning of the winding-up,
(I)redeemed, acquired or cancelled by the subsidiary for consideration that consists solely of money or shares of the capital stock of the parent, or of any combination of the two, or
(II)exchanged for shares of the capital stock of the parent, or
(B)a share of the capital stock of the parent issued on the amalgamation in exchange for a share of the capital stock of a predecessor corporation;
(vi)[Repealed, 2013, c. 40, s. 40]
(c.5)for the purpose of paragraph 88(1)(c.4), a corporation is a specified subsidiary corporation of another corporation, at any time, where the other corporation holds, at that time, shares of the corporation
(i)that give the shareholder 90% or more of the votes that could be cast under all circumstances at an annual meeting of shareholders of the corporation, and
(ii)having a fair market value of 90% or more of the fair market value of all the issued shares of the capital stock of the corporation;
(c.6)for the purpose of paragraph 88(1)(c.3) and notwithstanding subsection 256(9), where control of a corporation is acquired by way of articles of arrangement, that control is deemed to have been acquired at the end of the day on which the arrangement becomes effective;
(c.7)for the purpose of subparagraph 88(1)(c)(iii), a leasehold interest in a depreciable property and an option to acquire a depreciable property are depreciable properties;
(c.8)for the purpose of clause (c.2)(iii)(A), a specified class of the capital stock of a corporation is a class of shares of the capital stock of the corporation where
(i)the paid-up capital in respect of the class was not, at any time, less than the fair market value of the consideration for which the shares of that class then outstanding were issued,
(ii)the shares are non-voting in respect of the election of the board of directors of the corporation, except in the event of a failure or default under the terms or conditions of the shares,
(iii)under neither the terms and conditions of the shares nor any agreement in respect of the shares are the shares convertible into or exchangeable for shares other than shares of a specified class of the capital stock of the corporation, and
(iv)under neither the terms and conditions of the shares nor any agreement in respect of the shares is any holder of the shares entitled to receive on the redemption, cancellation or acquisition of the shares by the corporation or by any person with whom the corporation does not deal at arm’s length an amount (excluding any premium for early redemption) greater than the total of the fair market value of the consideration for which the shares were issued and the amount of any unpaid dividends on the shares;
(c.9)for the purposes of paragraph (c.4), a reference to a share of the capital stock of a corporation includes a right to acquire a share of the capital stock of the corporation;
(d)the amount determined under this paragraph in respect of each property of the subsidiary distributed to the parent on the winding-up is such portion of the amount, if any, by which the total determined under subparagraph 88(1)(b)(ii) exceeds the total of
(i)the amount, if any, by which
(A)the total of all amounts each of which is an amount in respect of any property owned by the subsidiary immediately before the winding-up, equal to the cost amount to the subsidiary of the property immediately before the winding-up, plus the amount of any money of the subsidiary on hand immediately before the winding-up,
exceeds the total of
(B)all amounts each of which is the amount of any debt owing by the subsidiary, or of any other obligation of the subsidiary to pay any amount, that was outstanding immediately before the winding-up, and
(C)the amount of any reserve (other than a reserve referred to in paragraph 20(1)(n), subparagraph 40(1)(a)(iii) or 44(1)(e)(iii) of this Act or in subsection 64(1) or (1.1) of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as those two provisions read immediately before November 3, 1981) deducted in computing the subsidiary’s income for its taxation year during which its assets were distributed to the parent on the winding-up, and
(i.1)the total of all amounts each of which is an amount in respect of any share of the capital stock of the subsidiary disposed of by the parent on the winding-up or in contemplation of the winding-up, equal to the total of all amounts received by the parent or by a corporation with which the parent was not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) in respect of the subsidiary) in respect of
(A)taxable dividends on the share or on any share (in this subparagraph referred to as a “replaced share”) for which the share or a replaced share was substituted or exchanged to the extent that the amounts thereof were deductible from the recipient’s income for any taxation year by virtue of section 112 or subsection 138(6) and were not amounts on which the recipient was required to pay tax under Part VII of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read on March 31, 1977, or
(B)capital dividends and life insurance capital dividends on the share or on any share (in this subparagraph referred to as a “replaced share”) for which a share or a replaced share was substituted or exchanged,
as is designated by the parent in respect of that capital property in its return of income under this Part for its taxation year in which the subsidiary was so wound up, except that
(ii)the amount designated in respect of any such capital property may not exceed the amount determined by the formula
A – (B + C)
where
(ii.1)for the purpose of calculating the amount in subparagraph (ii) in respect of an interest of the subsidiary in a partnership, the fair market value of the interest at the time the parent last acquired control of the subsidiary is deemed to be the amount determined by the formula
A – B
where
(A)in the case of a depreciable property held directly by the partnership or held indirectly by the partnership through one or more other partnerships, the amount by which the fair market value (determined without reference to liabilities) of the property exceeds its cost amount,
(B)in the case of a Canadian resource property or a foreign resource property held directly by the partnership or held indirectly by the partnership through one or more other partnerships, the fair market value (determined without reference to liabilities) of the property, or
(C)in the case of a property that is not a capital property, a Canadian resource property or a foreign resource property and that is held directly by the partnership or held indirectly through one or more other partnerships, the amount by which the fair market value (determined without reference to liabilities) of the property exceeds its cost amount, and
(iii)in no case shall the total of amounts so designated in respect of all such capital properties exceed the amount, if any, by which the total determined under subparagraph 88(1)(b)(ii) exceeds the total of the amounts determined under subparagraphs 88(1)(d)(i) and 88(1)(d)(i.1),
(d.1)subsection 84(2) and section 21 of theIncome Tax Application Rulesdo not apply to the winding-up of the subsidiary, and subsection 13(21.2) does not apply to the winding-up of the subsidiary with respect to property acquired by the parent on the winding-up;
(d.2)in determining, for the purposes of this paragraph and paragraphs 88(1)(c) and 88(1)(d), the time at which a person or group of persons (in this paragraph and paragraph 88(1)(d.3) referred to as the “acquirer”) last acquired control of the subsidiary, where control of the subsidiary was acquired from another person or group of persons (in this paragraph referred to as the “vendor”) with whom the acquirer was not (otherwise than solely because of a right referred to in paragraph 251(5)(b)) dealing at arm’s length, the acquirer is deemed to have last acquired control of the subsidiary at the earlier of
(i)the time at which the vendor last acquired control (within the meaning that would be assigned by subsection 186(2) if the reference in that subsection to “another corporation” were read as “a person” and the references in that subsection to “the other corporation” were read as “the person”) of the subsidiary, and
(ii)the time at which the vendor was deemed for the purpose of this paragraph to have last acquired control of the subsidiary;
(d.3)for the purposes of paragraphs 88(1)(c), 88(1)(d) and 88(1)(d.2), where at any time control of a corporation is last acquired by an acquirer because of an acquisition of shares of the capital stock of the corporation as a consequence of the death of an individual, the acquirer is deemed to have last acquired control of the corporation immediately after the death from a person who dealt at arm’s length with the acquirer;
(e)for the purposes of the description of A in subparagraph (d)(ii.1), the fair market value of an interest in a particular partnership held by the subsidiary at the time the parent last acquired control of the subsidiary is deemed not to include the amount that is the total of each amount that is the fair market value of a property that would otherwise be included in the fair market value of the interest, if
(i)as part of the transaction or event or series of transactions or events in which control of the subsidiary is last acquired by the parent and on or before the acquisition of control,
(A)the subsidiary disposes of the property to the particular partnership or any other partnership and subsection 97(2) applies to the disposition, or
(B)where the property is an interest in a partnership, the subsidiary acquires the interest in the particular partnership or any other partnership from a person or partnership with whom the subsidiary does not deal at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)) and section 85 applies in respect of the acquisition of the interest, and
(ii)at the time of the acquisition of control, the particular partnership holds directly, or indirectly through one or more other partnerships, property described in clauses (A) to (C) of the description of B in subparagraph (d)(ii.1);
(e.1)the subsidiary may, for the purposes of computing its income for its taxation year during which its assets were transferred to, and its obligations were assumed by, the parent on the winding-up, claim any reserve that would have been allowed under this Part if its assets had not been transferred to, or its obligations had not been assumed by, the parent on the winding-up and notwithstanding any other provision of this Part, no amount shall be included in respect of any reserve so claimed in computing the income of the subsidiary for its taxation year, if any, following the year in which its assets were transferred to or its obligations were assumed by the parent;
(e.2)paragraphs 87(2)(c), (d.1), (e.1), (e.3), (e.42), (g) to (l), (l.21) to (u), (x), (z.1), (z.2), (aa), (cc), (ll), (nn), (pp), (rr) and (tt) to (xx), subsection 87(6) and, subject to section 78, subsection 87(7) apply to the winding-up as if the references in those provisions to
(i)“amalgamation” were read as “winding-up”,
(ii)“predecessor corporation” were read as “subsidiary”,
(iii)“new corporation” were read as “parent”,
(iv)“its first taxation year” were read as “its taxation year during which it received the assets of the subsidiary on the winding-up”,
(v)“its last taxation year” were read as “its taxation year during which its assets were distributed to the parent on the winding-up”,
(vi)“predecessor corporation’s gain” were read as “subsidiary’s gain”,
(vii)“predecessor corporation’s income” were read as “subsidiary’s income”,
(viii)“new corporation’s income” were read as “parent’s income”,
(ix)“subsection 89(5)” and “subsection 89(9)” were read as “subsection 89(6)” and “subsection 89(10)”, respectively,
(x)“any predecessor private corporation” were read as “the subsidiary (if it was a private corporation at the time of the winding-up)”,
(xi) and (xii)[Repealed, 1994, c. 7, Sch