The HST Blog : Canada Harmonized Sales Tax Lawyer Cyndee Todgham Cherniak for Assessments, PST & RST Issues in Ontario, British Columbia & Quebec

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Amalgamations are the combining of one or more corporation to form a new entity.  For example, Corporation A and Corporation B can amalgamate under corporate laws to form Corporation AB.  The assets and liabilities are transferred to the newly amalgamated entity.  The question arises whether there are GST/HST consequences.

The answer is found, in part, in paragraph 271(c) of the Excise Tax Act (Canada), which provides that:

Where two or more corporations (each of which is referred to in this section as a “predecessor”) are merged or amalgamated to form one corporation (in this section referred to as the “new corporation”), ... for the purposes of this Part, the transfer of any property by a predecessor to the new corporation as a consequence of the merger or amalgamation shall be deemed not to be a supply.

The rest of the answer is overlooked by many advisors.  Paragraph 271(a) of the Excise Tax Act (Canada) provides that for some purposes the new corporation is deemed to be a separate person form each of the predecessor corporations. Paragraph 271(b) of the Excise Tax Act (Canada) provides that for the purposes of applying certain prescribed provisions, the new corporation shall be deemed to be the same corporation as, and a continuation of, each predecessor corporation. The list of prescribed provisions is contained in the Amalgamation and Winding-up Continuation (GST/HST) Regulations. The list includes

1. Section 120
2. Definition “builder” in subsection 123(1)
3. Section 134
4. Section 148
5. Section 148.1
6. Subsection 149(1)
7. Section 150
8. Section 156
9. Section 160
10. Section 166
11. Section 181.1
12. Section 182
13. Subsections 183(2) and (4) to (8)
14. Subsections 184(2) to (7)
15. Subsection 186(1)
16. Section 194
17. Section 219
18. Section 222
19. Subsection 223(2)
20. Section 224
21. Section 225
22. Section 227
23. Section 228
24. Section 229
25. Section 230
26. Section 230.1
27. Section 232
28. Section 233
29. Section 237
30. Section 238
31. Section 261
32. Section 263
33. Section 263.1
34. Section 264
35. Section 265
36. Section 266
37. Section 273
38. Section 274
39. Divisions VIII and IX of PART IX

Two additional provisions that are affected by an amalgamation are sections 231 and 249 of the Excise Tax Act.

It is beyond the scope of this short blog article to address each of these provisions in detail. I would like to highlight that the past GST/HST liabilities (and entitlements) continue in the new corporation.  for this reason, it is important to undertake due diligence of GST/HST accounts before agreeing to an amalgamation because the new corporation may end up saddled with old GST/HST debts and the new directors may ultimately be assessed if the GST/HST debts cannot be recovered from the new corporation.

There is another important issue that is overlooked - registration numbers.  Often, the advisors forget to notify the government authorities (including the Canada Revenue Agency (CRA) for GST/HST purposes) about the amalgamation and continue with one of the registration numbers of a predecessor corporation.  This is wrong.  Technically, the the new corporation needs to obtain a new GST/HST registration number.  It is possible to ask the CRA if one of the GST/HST numbers of a predecessor entity may be continued and the other registration numbers canceled.

An amalgamation is an event for GST/HST purposes that has consequences.  For more information, please contact Cyndee Todgham Cherniak at 316-760-8999.