Utilization of Tax Losses And Debt Restructuring. January 13, 2009 James A. Hutchinson

Transcription

1 Utilization of Tax Losses And Debt Restructuring January 13, 2009 James A. Hutchinson

2 Triggering Accrued Losses -- The Stop-loss Rules

3 Triggering Accrued Losses - The Stop-loss Rules (Cont d) The Old Rules -- Depreciable Property (Subsection 85(5.1)) Loss denied to transferor Loss transferred to transferee e.g. Corporation A with accrued losses on depreciable property transfers business to partnership with corporation B in exchange for 51% partnership interest Depreciable property Cost 1,200 UCC 1,000 FMV 100

4 Triggering Accrued Losses - The Stop-loss Rules (Cont d) The Old Rules -- Depreciable Property (Subsection 85(5.1)) No loss to corporation A Partnership can claim $1,000 of CCA over time on asset worth $100 Corporation B, the 49% partner, gets CCA of $490 over time on asset in which it has an economic interest of $49

5 Triggering Accrued Losses - The Stop-loss Rules (Cont d) The Affiliated Persons Concept Consistent definition of affected group used virtually throughout the stop-loss rules Some similarity to related persons definition but there are significant differences De facto control test Narrower set of individuals are affiliated spouses only

6 Triggering Accrued Losses - The Stop-loss Rules (Cont d) The Affiliated Persons Concept Rules for partnerships Until 2004 Federal Budget, no specific rules for trusts 2004 Budget Amendments shift focus from trustees to contributors and beneficiaries

7 Triggering Accrued Losses - The Stop-loss Rules (Cont d) The Basic Concept Loss denied to transferor Loss stays with transferor until earliest of certain events occurs

8 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Depreciable Property -- (Subsection 13(21.2)) Loss is denied to transferor Transferee has same capital cost and UCC equal to fair market value Transferor acquires notional property of same class at difference between deemed proceeds and fair market value Transferor can claim CCA (and eventually a terminal loss) on notional property

9 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Depreciable Property -- (Subsection 13(21.2)) Loss denied to transferor until Property no longer held by affiliate Change to non-income producing use Change of residence or tax status of transferor Acquisition of control of transferor Non-subsection 88(1) wind up of corporate transferor

10 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Depreciable Property -- (Subsection 13(21.2)) e.g. Corporation A with accrued losses on depreciable property transfers depreciable property to partnership with corporation B in exchange for 51% partnership interest Depreciable Property Cost 1,200 UCC 1,000 FMV 100

11 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Depreciable Property -- (Subsection 13(21.2)) No loss to corporation A Partnership can claim $100 of CCA over time on asset worth $100 Corporation A can claim CCA of $900 on notional asset

12 13(21.2) Gary Landrus v. HMTQ 2008 TCC 274 Facts: TP was a limited partner of a partnership ( RII ) formed to acquire a condo building RII and related partnership ( RI ), which owned adjacent condo building, disposed of buildings to a third partnership ( RPM ) limited partners of RI and RII received interests in RPM Terminal losses on disposition allocated to limited partners of RI and RII and deducted under 20(16), ITA TP reassessed under GAAR deduction of terminal losses disallowed because TP allegedly retain economic interest in transferred property TP appealed to TCC

13 13(21.2) Landrus (cont d) Holding: Appeal allowed: GAAR did not apply; assessment vacated Disposition by RII to RPM was an avoidance transaction because primarily arranged for tax benefit (245(3)) However, resulting terminal loss did not constitute a misuse or abuse of the ITA (245(4)) no policy prohibiting losses on a transfer between related parties or economic unit 13(21.2) (formerly 85(5.1)) denies terminal losses on transfers of depreciable property between partnerships in certain circumstances; otherwise, TPs allowed to claim terminal losses (i.e., in the present case, TP not a majority interest partner) GAAR not to fill gaps in legislation NOTE: Landrus currently under appeal

14 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Non-depreciable property -- (Subsections 40(3.3)-(3.6)) Subsection 40(3.4) provides that the transferor s loss from the disposition is to be nil and held in suspense until certain triggering events take place Subsection 40(3.3) sets out preconditions for 40(3.4) to apply: (i) Corporation, trust or partnership disposes of a nondepreciable capital property (subject to certain limited exceptions); (ii) during the 61-day period commencing 30 days before and ending 30 days after the disposition, the transferor or an affiliated person acquires the same or an identical property (the substituted property ); and (iii) at the end of the period, the transferor or an affiliated person owns the substituted property

15 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Non-depreciable property -- (Subsections 40(3.3)-(3.6)) Subsection 40(3.5) defines the concept of identical property, as well as the period of ownership of a substituted property CRA view is that 40(3.3) and (3.4) "apply" for 40(3.5)(c) even if the corporation is wound up before the period expires However see Cascade, 2008 D.T.C Subsection 40(3.6) applies where a taxpayer disposes of a share (other than a distress preferred share) of an affiliated corporation which continues to be affiliated after the disposition The loss is deemed to be nil and is added to the ACB of the transferor s shares of the affiliated corporation

16 Subsection 40(3.6), ITA L. Milton Hess v. HMTQ 2008 TCC 4, para. 10: the opening words of subsection 40(3.6) refer to a corporation buying back its own shares.

17 Cascades Inc. v. R., 2008 D.T.C Facts Taxpayer participated in a financial restructuring plan Plan included the exchange of all ordinary shares of PII held by minority shareholders for new ordinary shares of taxpayer Taxpayer was the sole shareholder of Corporation C (one preferred share) Taxpayer sold all ordinary shares of PII held to C for a capital loss in exchange for 33,025,966 common shares of C Capital loss = $15,941,608 (ACB of $68,783,154 minus $52,841,546) C bought back preferred share that was issued to taxpayer P and C amalgamated 26 days afterwards All of ordinary shares that PII held were exchanged for ordinary shares of the taxpayer Category A and B preferred shares of PII were converted into category A and B preferred shares of C Taxpayer was only shareholder of converted new shares Minister reduced the capital loss by $15,941,608 - the loss was deemed to be nil under ss. 40(3.4) Taxpayer appealed Minister s loss determination for taxation year

18 Cascades Inc. v. R., 2008 D.T.C Issue Whether the taxpayer is entitled to claim the $15,941,608 loss immediately when all of its shares in PII were disposed in favour of C Taxpayer Position Presumption in s. 40(3.5)(c) does not apply in this case 40(3.5)(c) only applies if ss. 40(3.3) and s. 40(3.4) apply In particular condition in s. 40(3.3)(c) was not met

19 Cascades Inc. v. R., 2008 D.T.C CRA Technical Interpretations ss. 40(3.5)(c) - when a transferor disposes of a share of the capital stock of a corporation that is then merged with one or more other corporations, the corporation formed on the merger is deemed to own the share as long as it is affiliated with the transferor Technical Interpretation and Technical Interpretation state that following the winding-up of the company, the parent company is deemed to own the share while it is affiliated with the transferor Necessary and appropriate to apply the presumption in ss. 40(3.5)(c) for the purposes of applying ss. 40(3.3) and ss. 40(3.4)

20 Cascades Inc. v. R., 2008 D.T.C Holding The Court applied the principles of interpretation and referred to Imperial Oil Ltd. v. R., 2006 SCC 46 and Canada Trustco Mortgage Co. v. R., 2005 SCC 54 Statute must be interpreted in order to achieve consistency, predictability and fairness so that taxpayers can manage their affairs intelligently Nothing to indicate that ss. 40(3.5)(c) must be used to determine whether the loss is deemed to be nil under ss. 40(3.4) On the contrary, subsection 40(3.5)(c) only applies if subsections 40(3.3) and 40(3.4) apply first The stop-loss rule in ss. 40(3.4) is a specific anti-avoidance measure to prevent taxpayers from immediately recognizing a latent capital loss on non-depreciable capital property not the case here

21 Cascades Inc. v. R., 2008 D.T.C Holding (Cont ) In order for ss. 40(3.3)(c) to apply, the transferor or an affiliated person must own the substituted property at the end of the 61 day period specified in ss. 40(3.3)(b) Since the shares disappeared in the course of a merger and no longer existed, the taxpayer could not be said to have still possessed (or repossessed) them within the 61 day period Therefore taxpayer not subject to ss. 40(3.4) because conditions set out in ss. 40(3.3) were not all met NOTE: Cascades currently under appeal

22 Triggering Accrued Losses - The Stop-loss Rules (Cont d) CRA Interpretation E5 Capital losses arising from a disposition of shares deemed to have been made under ss. 50(1) are not subject to deferral or denial under ss. 40(3.4) or (3.6) Closing portion of ss. 50(1) deems the taxpayer to have disposed of the shares of the corporation at the end of the taxation year for proceeds equal to nil and to have reacquired the shares immediately after the end of the year at a cost equal to nil

23 Triggering Accrued Losses - The Stop-loss Rules (Cont d) CRA Interpretation R3 Subsection 40(3.4) does not suspend losses where alter ego trust makes gift of shares of capital property to qualified donee pursuant to provision in trust s indenture that gives its trustees discretion to do so Alter ego trust will wind-up, at which point any suspended capital losses will be realized under s. 40(3.4)(b)(i) as it will not be possible for the alter ego trust to be affiliated with any person or partnership upon winding-up

24 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Non-depreciable property -- (Subsection 40(3.3)ff) Similar to depreciable property rules Loss denied and held in suspense until earliest of certain events Special rules to deal with changes to or disappearance of the loss property Special rules where shares with accrued losses are redeemed by affiliated corporation

25 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Eligible capital property (Subsections 14(12) and (13)) Stop-loss rules for eligible capital property Rules similar to ss. 40(3.3) and (3.4) Terminal loss is denied to the transferor until a triggering event occurs (the triggering events are same as for ss. 40(3.4)

26 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Accrued losses on inventory (Subsections 18(14) and (16)) Stop-loss rules for accrued losses on inventory of a business that is an adventure or concern in the nature of trade Rules similar to ss. 40(3.3) and (3.4) Terminal loss is denied to the transferor until a triggering event occurs (the triggering events are same as for ss. 40(3.4) Similar rule has been in the Act for property held in a money lending business (ss. 18(13))

27 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Superficial losses (Subsection 40(2)(g)(i)) Taxpayer s superficial loss is deemed to be nil Superficial loss defined in s. 54: loss of a taxpayer from the disposition of property, subject to certain limited exceptions; where the same or identical property (the substituted property ) was acquired during the 61 day period commencing 30 days prior to the disposition by the taxpayer or an affiliated person; and at the end of the period, the taxpayer or an affiliated person owned or had a right to acquire the substituted property Amount of the denied loss is added to the ACB of the substituted property loss transferred to the transferee

28 40(2)(g) Gregorina Alessandro v. Facts: HMTQ 2007 TCC 1373 For 1994, Minister reassessed and included shareholder benefit in TPs income based on non-arm s length purchase of real property from a corporation of which TP was a shareholder Shareholder benefit = FMV of property less balance of TP s shareholder account less declare, unpaid dividend include in TPs income For 1997, Minister reassessed and denied carry-back to 1994 of ABIL from interest-free loans advanced to another corporation that became insolvent because TP not a shareholder TP appeal to TCC challenging calculation of shareholder benefit, denial of ABIL in 1997 and resulting denial of carry-back to 1994

29 40(2)(g) Alessandro (cont d) Holding: Appeals allowed For 1994, shareholder benefit reduced on account of shareholder advances made by TP For 1997, ABIL (and resulting carry-back) reduced to account for TP s overstatement of loans advanced TP satisfied burden of proof that conditions under 40(2)(g)(ii), ITA, (triggered to 50(1) election for bad debts) were met as loans advanced for purpose of earning income (e.g., possibility of earning dividend income) While not a direct shareholder, TP had direct and indirect control of corporation and its shareholders, which meant TP could cause dividends to be paid to her Minister ordered to reassess accordingly

30 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Paragraph 40(2)(e.1) and ATR 66 Avoid debt forgiveness and sell losses Holdco Purchaser Common Shares 100% Note Cost 100 FMV 60 Opco non-capital losses

31 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Paragraph 40(2)(e.1) and ATR 66 Note Cost 60 FMV 60 Holdco Common shares Opco Common shares Subco Note Cost 100 FMV 60 - Holdco sells Note to Subco for a Note - 40(2)(e.1)

32 Triggering Accrued Losses - The Stop-loss Rules (Cont d) Paragraph 40(2)(e.1) and ATR 66 Holdco - Subco winds up into Opco Common Shares 100% Opco Note Cost 60 FMV 60 - losses of Opco are preserved - Holdco loses accrued capital loss on Note - Holdco sells Opco to Purchaser Losses (preserved)

33 Triggering Accrued Losses - The Stop-loss Rules (Cont d) For an interesting ruling regarding 40(2)(e.1), 111, 13(21.2) and 80, ITA, see Ruling R3

34 Planning Triggering Accrued Losses - The Stop-loss Rules (Cont d) Need to devise strategies to utilize loss in hands of transferor Bear in mind impact of acquisition of control rules on ability of transferor to use losses

35 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group

36 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group General Overview Two sets of rules Affiliated group CRA and the Act are generally indulgent Unaffiliated group Hostile statutory and administrative regime e.g. Acquisition of control rules, 69(11), GAAR 1995 change in CRA s position from related group to affiliated group

37 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Amalgamations Deemed year end Usual carryforward rules No carryback generally Subsection 87(2.11) - exception to no carryback rule Subsection 87(11) Possible capital gain on disposition of shares on amalgamation

38 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Subsection 87(2.11) -- Example 1 A B C 100%c 100% A, B and C amalgamate CRA says only A is the parent for subsection 87(2.11) purposes

39 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Subsection 87(2.11) -- Example 2 100% A1 100% A2 X 100% B1 B2 A1, A2, B1 and B2 amalgamate CRA says subsection 87(2.11) not applicable

40 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Loss Utilization Techniques Transfer of appreciated assets to affiliated lossco and sale to third party at FMV Subsection 69(11) not applicable because affiliated Subsection 55(3)(a) -- more relaxed rules Property should not change character

41 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Shifting Interest Expense There are a variety of techniques to shift interest income and expense between affiliated corporations e.g. Parent has loss subsidiary, Parent borrows from bank and subscribes for common shares of subsidiary Interest charges reduce Parent s income and cash infusion generates profit to subsidiary

42 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Shifting Interest Expense Where Parent is loss corporation, more complicated arrangements are required Parentco [Losses] 100% Profitable Subsidiary

43 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Shifting Interest Expense Parent incorporates two new subsidiaries, Lossco and Shareco Parent borrows money and lends money to Lossco bearing interest; Lossco subscribes for preferred shares in Shareco; Shareco lends money interest free to Parent

44 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Shifting Interest Expense Parentco Losses Loan (interest) Loan 0% Profitable Subsidiary Shareco p/s Lossco

45 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Shifting Interest Expense Parent earns interest income Lossco incurs losses Structure is unwound; Lossco amalgamates with profitable subsidiary Parentco Subsidiary (Losses)

46 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Shifting Interest Expense CRA had indicated in a 2002 advance income tax ruling that while tax loss consolidation within an affiliated group is generally permissible, refreshing of a loss company s loss in a manner which results in a profitable affiliate incurring interest expense which generates a non-capital loss is not permissible.

47 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Shifting Interest Expense Technical News No. 25 clarifies this Creating loss and using it for 3-year loss carry back is acceptable Carrying loss beyond original 7 (now 20) year loss carry forward period is not acceptable.

48 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Sell Assets in exchange for Interest Bearing Debt Loss corporation gets recapture, capital gain and interest income Profitable corporation gets interest deduction and CCA Paragraph 13(7)(e) may restrict write up of asset

49 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Self Help Non-use of discretionary deductions Loss corporation should not claim discretionary deductions, e.g. CCA Consider claiming CCA on slow write off assets but not on fast write off assets

50 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Partnerships between Profitable and Loss Corporations See discussion above regarding stop-loss rules Alternative to transferring profitable business directly to loss corporation Need adequate financial contribution by Lossco 13(7)(e)

51 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Partnerships between Profitable and Loss Corporations Income is shares between profitable and loss corporation Must be adequately documented and legally effective Must have appropriate profit sharing ratio Consider section 103 e.g. West Topaz

52 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Avoiding Acquisitions of Control Be careful Subsection 69(11) especially inventory Consider all anti-avoidance provisions substance is critical Duha Printers SCC Pre-GAAR Aggressive planning

53 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Transferring losses outside the group This was much easier pre-gaar and preenactment of subsection 13(21.2), subsections 40(3.3) to (3.6) and related provisions CRA will fight these structures aggressively OSFC Holdings is first Federal Court of Appeal GAAR decision and deals with a tax loss utilization scheme

54 Utilization And Preservation Of Realized Losses With An Affiliated Corporate Group (Cont d) Transferring losses outside the group FCA held sale of tax losses to an arm s length party was abuse of the Act read as a whole Canada Trustco and Kaulius are first Supreme Court of Canada GAAR decisions Kaulius companion case to OSFC Investors lose Canada Trustco leveraged lease transaction, taxpayer is successful Extensive analysis of methodology of GAAR

55 GAAR Earl Lipson v. HMTQ Facts: 2009 SCC 1 TP and wife purchased family residence ( Home ) Wife borrows from bank ( Share Loan ) to buy shares of family corporation from TP ( Shares ) at FMV TP and Wife take out mortgage on Home from bank ( Mortgage ) and use it to repay Share Loan For 94, 95, 96, TP, relying on 20(1)(c), 20(3), 73(1) & 74.1, ITA, deducted interest on Mortgage and reported taxable dividends on Shares Minister reassessed interest deductions denied TP s appeal to TCC dismissed; TP s appeal to FCA dismissed TP appealed to SCC

56 GAAR Lipson (cont d) Holding: Appeal dismissed based on GAAR Transactions were avoidance transactions TP conceded tax benefit of interst deductibility 20(1)(c) and 20(3) not misused or abused; rather, operation of 73(1) and 74.1(1) allowed TP to deduct interest to reduce tax on dividend and other income not otherwise available if TP and wife dealt at arm s length Purchase of Shares at FMV not determinative Automatic operation of 74.1(1) did not matter Allowing 74.1(1) to reduce TP s income tax frustrates purpose of the attribution rules automatic operation of a particular section may subject otherwise legitimate transaction to GAAR Taking advantage of non-arm s length relationship may subject otherwise legitimate transactions to GAAR

57 GAAR HMTQ v. John MacKay Facts: et al FCA 105 TPs agreed to purchase shopping centre ( Property ) subject to foreclose of Bank s mortgage ( Mortgage ) Bank formed limited partnership with subsidiary ( Partnership ) and Mortgage interest to Partnership TPs purchased units in Partnership Property transferred to Partnership on completion of foreclosure proceedings Partnership wrote down value of Property under 10(1), ITA, generating $6M loss allocated to TPs, who made corresponding deductions against their income Minister reassessed under GAAR loss deductions and carry-forwards denied TPs appeal to TCC allowed series of transactions was bona fide and no particular transaction was an avoidance transaction; GAAR did not apply; Minister appealed to FCA

58 GAAR MacKay et al. (cont d) Holding: Appeal allowed Although series of transactions had a bona fide business purpose, the transactions that resulted in the transfer of the accrued loss on the Mortgage from the Bank to the Partnership to enable TPs to deducted losses constituted an abusive avoidance transaction

59 CRA Roundtable 2008 Current Audit Projects Artificial Losses Assessed about 75 cases Capital losses of $2.3 Billion Several different methods utilized Taxpayers are currently manufacturing High ACB shares with little value for future use Several cases currently before courts

60 CRA Roundtable 2008 (Cont ) Current Audit Projects Business Losses 2004 to ,000 Participants Losses claimed of $400 million Purchased on basis of $1 paid = $5 loss

61 Treatment Of Tax Losses On An Acquisition of Control

62 Treatment Of Tax Losses On An Acquisition Of Control Deemed year end (249(4); 256(9)) La Survivance Control means de jure control Duha Printers unanimous shareholder agreements are relevant Test is acquisition of control not change of control

63 Treatment Of Tax Losses On An Acquisition Of Control (Cont d) Need an identifiable group acting in concert to be a group Exceptions in Act for related persons Rules re amalgamations Subsection 256(7) changes

64 Subsection 256(7) CRA Conference October 5, 2007 Private Corporation (Holdco) controlled by a group of three persons amalgamates with a Public Corporation to form Amalco Shareholders of Pubco receive non-voting shares of Amalco therefore shareholders of Holdco control Amalco Determination of the number of year-ends that result Taxation years of Holdco and Pubco that would otherwise have ended after the amalgamation are deemed to have ended immediately before the amalgamation (s. 87(2)(a)) Further, group of former shareholders of Holdco will technically be deemed to have acquired, immediately before the amalgamation, control of Pubco pursuant to ss. 256(7)(b)(ii) ss. 249(4)(a) - generates a deemed taxation year-end with respect to Pubco immediately before the time that is immediately before the amalgamation (two deemed yearends for Pubco)

65 Treatment Of Tax Losses On An Acquisition Of Control (Cont d) Impact of acquisition of control No capital loss carryforwards No property loss carryforwards Write-down of assets with accrued losses and possible write up of appreciated assets Business losses streamed Same business test Garage Montplaisir Income test -- Manac

66 Proposed Amendment - ss. 111(4) Subsection 111(4) A corporation that undergoes an acquisition of control is required to recognize all of its accrued capital losses on property that the corporation owns at that time The newly-realized capital losses, together with the existing net capital losses cannot be used after the acquisition of control New ss. 111(12) Extends ss. 111(4) to also apply to a corporation s accrued capital gains and losses resulting from currency fluctuations on debt liabilities denominated in a foreign currency Under the old rules, capital gains and losses resulting from foreign currency fluctuations on a corporation s debt liabilities were not subject to these rules For the purposes of ss. 111(4), if at any time a corporation owes a foreign currency debt, the corporation is deemed to own, immediately before that time, a property with an adjusted cost base (ACB) and fair market value (FMV) determined by the formulas contained in ss. 111(12)(a) and (b) Establishing an ACB and an FMV for this notional property allows for the calculation of capital losses or gains

67 Proposed Amendment - ss. 111(4) New ss. 111(13) Provides that for the purposes of ss. 111(12) and ss. 40(10) and (11), new borrowings under an existing credit facility after an acquisition of control will be treated as a separate debt Application of ss. 111(12) and (13) Will apply to acquisitions of control after March 7, 2008, other than acquisition of control that occurs before 2009, where the person acquiring control are obligated to acquire control pursuant to the terms of an agreement in writing made by them on or before March 7, 2008 Corporations will also be able to elect to have the new ss. 111(12) and ss. 111(13) apply to acquisitions of control that occur after 2005

68 Debt Restructuring, Debt Forgiveness and Loss Preservation

69 Debt Restructuring, Debt Forgiveness and Loss Preservation Debt forgiveness rules commercial obligation forgiven amount 80(2) rules interest debt for shares debt for debt

70 Debt Restructuring, Debt Forgiveness and Loss Preservation (Cont d) Debt forgiveness rules Amalgamations and wind-ups Debt parking Application of forgiven amount Statute Barred Debt 80.01(9) Hare v. Hare Recent retroactive amendments to the Ontario Limitations Act permit business parties to extend the limitation period

71 Debt Restructuring Techniques (Avoiding Debt Forgiveness)

72 Debt Restructuring Techniques (Avoiding Debt Forgiveness) Moratorium on payment Debt for debt Equity for debt Paragraph 40(2)(e.1) Debt parking - the 80% test

73 Managing Debt Forgiveness

74 Managing Debt Forgiveness Section Amalgamation or wind-up Utilizing expiring loss carryforwards Statute-barred debt Acquisition of control issues