On September 26, 2013, the Supreme Court of Canada (SCC) dismissed the taxpayer's appeal in Envision Credit Union v. Canada (2013 SCC 48).1 The case involved the amalgamation of two credit union corporations (the predecessors) to form a single entity (the taxpayer, Envision) under the corporate laws of the province of British Columbia. Envision took the position that the amalgamation was a taxable transaction that did not constitute a "qualifying amalgamation" (a tax-deferred merger of the two participating entities within the rules in the Income Tax Act (Canada)). To constitute a qualifying amalgamation, Envision would have had to have acquired all of the property and assumed all of the liabilities of the predecessor corporations on the amalgamation. Envision sought to prevent this by providing in the amalgamation agreement between the two predecessors that certain surplus properties belonging to them were, simultaneously with the amalgamation, transferred to a recently created subsidiary. Envision argued that since a qualifying amalgamation did not occur, it was entitled to claim a higher amount of capital cost allowance (CCA) on its depreciable assets as it was not required to take into account any CCA deductions previously claimed by the predecessors on those assets.
All seven SCC justices hearing the case disagreed and found in favour of the Crown. Justice Rothstein of the SCC concluded that the corporate statute governing the amalgamation both required and deemed Envision to own all of the properties of its predecessors, a result which amalgamating credit unions could not contract out of or otherwise deviate from. Accordingly, the amalgamation of the predecessors to form Envision was a qualifying amalgamation for ITA purposes, and the predecessors' CCA deductions flowed through to Envision on the amalgamation.
Steve Suarez of BLG's Tax Group has written an article discussing the case and the SCC's decision, which was published in the September 30, 2013 edition of Tax Notes International. Steve comments that the SCC's decision is significant, not only because it emphasizes the importance of carefully interpreting the non-tax (corporate) law in assessing the tax consequences of a transaction, but also because it clearly reverses the prior uncertainty arising from the Federal Court of Appeal's approach in deciding the case.
To learn more about the case and the SCC's decision, please click here to read Steve's article.
Footnotes
1 The judgement is available at http://scc.lexum.org/decisia-scc-csc/scc-csc/scc-csc/en/item/13263/index.do. For prior coverage of this case, see Suarez, "Supreme Court to Hear Appeal in Amalgamation Case", Tax Notes Int'l, June 25, 2012, p. 20.
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