Reorganizations : Tax tips

The merger of an existing operating corporation with a shell corporation

The merger of an existing operating corporation with a shell corporation is sometimes undertaken solely for the purpose of triggering a new year end. CRA (the Canadian income tax department) views this type of transaction to be a misuse of the Act and the general anti-avoidance rule (GAAR) would apply.

Are you incorporating your existing business? Then carry out a tax free rollover of the assets

If you’re incorporating your existing business you will have to carry out a tax free rollover of the assets into the corporation and elect to defer income tax under section 85 of the Canadian Income Tax Act to avoid an immediate tax liability.