I-3 - Taxation Act

Section 577.5.1 Disposition versions

2020-09-24

577.5.1. For the purposes of sections 262.0.1, 262.0.2, 576.2, 577.5 and 577.6 to 577.11, the rules set out in the second paragraph apply at a particular time where

(a)  immediately before the particular time, a person or partnership (in this section referred to as the “original debtor”) owes an amount in respect of a loan or indebtedness (in this section referred to as the “pre-transaction loan”) to another person or partnership (in this section referred to as the “original creditor”);

(b)  the pre-transaction loan was, at the time it was made or entered into, a loan or indebtedness described in section 577.5; and

(c)  in the course of an amalgamation, a merger, a winding-up or a liquidation and dissolution, any of the following facts occurs:

i.  the amount owing in respect of the pre-transaction loan becomes owing at the particular time by another person or partnership (the amount owing after the particular time and the other person or partnership being in the second paragraph referred to as the “post-transaction loan payable” and the “new debtor”, respectively),

ii.  the amount owing in respect of the pre-transaction loan becomes owing at the particular time to another person or partnership (the amount owing after the particular time and the other person or partnership being in the second paragraph referred to as the “post-transaction loan receivable” and the “new creditor”, respectively), or

iii.  the taxpayer in respect of which the original debtor was a specified debtor at the time referred to in subparagraph b

(1)  ceases to exist, or

(2)  merges with one or more corporations to form one corporate entity (in the second paragraph referred to as the “new corporation”).

The rules to which the first paragraph refers are as follows:

(a)  if the fact described in subparagraph i of subparagraph c of the first paragraph occurred,

i.  the post-transaction loan payable is deemed to be the same loan or indebtedness as the pre-transaction loan, and

ii.  the new debtor is deemed to be the same debtor as, and a continuation of, the original debtor;

(b)  if the fact described in subparagraph ii of subparagraph c of the first paragraph occurred,

i.  the post-transaction loan receivable is deemed to be the same loan or indebtedness as the pre-transaction loan, and

ii.  the new creditor is deemed to be the same creditor as, and a continuation of, the original creditor;

(c)  if the fact described in subparagraph 1 of subparagraph iii of subparagraph c of the first paragraph occurred,

i.  subject to subparagraph ii, each entity that held an interest in the taxpayer described in that subparagraph iii immediately before the winding-up (in this subparagraph c referred to as a “successor entity”) is deemed to be the same entity as, and a continuation of, the taxpayer, and

ii.  for the purpose of applying section 577.10 and subparagraph a of the second paragraph of section 577.11, an amount, in respect of a loan or indebtedness, equal to whichever of the following amounts is applicable is deemed to have been included under section 577.5 in computing the income of each successor entity:

(1)  if the taxpayer is a partnership, the amount that may reasonably be considered to be the successor entity’s share of the specified amount that was required to be included in computing the taxpayer’s income under section 577.5 in respect of the loan or indebtedness, such share being determined in a manner consistent with the determination of the successor entity’s share of the income of the partnership under section 600 for the taxpayer’s final fiscal period, and

(2)  in any other case, the portion of the specified amount included in computing the taxpayer’s income under section 577.5, in respect of the loan or indebtedness, represented by the proportion that the fair market value of the successor entity’s interest in the taxpayer, immediately before the distribution of the taxpayer’s assets on the winding-up, is of the fair market value of all interests in the taxpayer at that time; and

(d)  if the fact described in subparagraph 2 of subparagraph iii of subparagraph c of the first paragraph occurred, the new corporation is deemed to be the same corporation as, and a continuation of, the taxpayer.

2020, c. 16, s. 82.