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Tax Brief: Utilizing Non-Capital Losses Post-Amalgamation

MMV Capital Partners vs The Queen

Companies are allowed to use non-capital losses as offsets to non-capital gains. However, there are rules stating that when a corporation has acquired another corporation, capital losses from the acquired corporation cannot be utilized by the acquiring corporation. The exceptions to this rule are that (1) tax attributes can be accessed by related entities under common control and/or (2) when regardless of ownership, the new entity carries on the same or similar business, with the expectation of a profit. The Canada Revenue Agency (“CRA”) reassessed MMV Capital Partners (“the Taxpayer” or “MMV”), not only disallowing the non-capital loss deductions but also levied GAAR.

As part of their assessment of the case facts, the judgement considered the nature/circumstances of the original business operations wind-down, capital structure change, amendment of articles and share capital etc. The case judge utilized a (bright-line test of) de jure control understanding to conclude that ownership changes did not occur and therefore, allowed the appeal by MMV, for the eligibility to utilize the non-capital gain.

This case shows that non-capital losses can be claimed by an acquiring corporation but that caution should be taken. Some areas where an acquiring corporation can utilize the losses of the acquired corporation may include amalgamations/wind-ups, selling and transferring of appreciated assets between corporations, intercorporate fees/leases etc.

Taxpayers should understand that the utilization of SR&ED claims requires specific criteria to be followed and the correct tax professional matter expertise. To read more about the decision/case, refer to the link.


Questions in how the above matter may relate to you? Reach out to Blumenfeld Woznica & Co to see how this matter may impact your specific accounting and/or tax situation.


This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as account/tax opinion or advice.

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