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Amalgamations Part 2: What Dentists Need to Know

By November 11, 2013January 20th, 2022Corporate

In a previous blog, I discussed what amalgamations are and why they occur in the context of a dentist purchasing the shares of another dentistry professional corporation. In this blog, I’m going to talk about what happens to the taxation year (the beginning and end) of the predecessor corporations and the amalgamated corporation when the amalgamation happens.

Since the amalgamated corporation is considered to be a new corporation (it does have a separate Ontario corporation number, for example), the first taxation year is deemed to start AT THE TIME of amalgamation. This also means that the taxation year of the two predecessor corporations is deemed to come to an end immediately BEFORE the amalgamation: section 87(2)(a) of the Income Tax Act.

So when is the time of amalgamation? Well, if you turn to Interpretation Bulletin 474, the Canada Revenue Agency says that this is the earliest moment on the effective date of the amalgamation under the relevant corporate law – SO LONG AS THERE IS NO SPECIFIC time specified in the Certificate of Amalgamation. The following is an example taken from that Interpretation Bulletin:

…For example, where the fiscal years of the predecessor corporation normally end on December 31 and the effective date of amalgamation is January 1, the first taxation year of the new corporation will commence at the earliest moment on January 1, and the taxation years of the predecessor corporations will end at midnight on December 31. If the effective date of amalgamation is December 31, the first taxation year of the new corporation will commence at the earliest moment on December 31, and the taxation years of the predecessor corporations will end at midnight on December 30. Where the effective date of amalgamation is not the day after the normal fiscal year ends of the predecessor corporations, these corporations will have short fiscal years ending immediately before the amalgamation.

So when is the effective date of amalgamation in Ontario?

Articles of Amalgamation are effective on the date set out in the certificate endorsed on the articles by the Branch. The certificate is dated the day the Director receives the duplicate originals of the Articles of Amalgamation together with all other required documents executed in accordance with the Business Corporations Act and the required fee, if they are acceptable as per the Branch’s endorsement as of right policy. An effective date of up to 30 days later than the earliest date the articles can be endorsed may be requested in writing, in the covering letter, using bold or highlighted letters, upon submission of the articles to the Branch. If you are presenting your documents in person, you must also verbally bring this request to the attention of the counter clerk.

So why is this all-important to know? Well, basically, in a share sale, the purchasing and selling dentists need to realize the following:

When the purchaser dentistry professional corporation buys the shares of another dentistry professional corporation from a seller, those two corporations need to amalgamate on the closing date. This means that articles of amalgamation need to be filed, a new corporation number obtained, a status certificate provided to the RCDSO and a new Certificate of Authorization obtained for the newly amalgamated corporation. And this MUST all be done on the closing date. Why? If the closing occurs but the parties are LATE in filing articles of amalgamation by one day, then the financials for the purchaser and a tax return for the purchaser will need to reflect the fact that it just bought a subsidiary corporation. This means that, even though the purchaser dentistry professional corporation may have been created and had no operations and then, all of a sudden, it acquired an actual corporation that was operating, its financials would be dramatically different from that time period going forward. It would own 100% of a corporation that had assets, liabilities, income and expenses. The accountants will need to put together financial statements and tax returns that reflect this purchase. And this makes things very complicated.

Furthermore, the purchaser may actually be using the name of the vendor without the vendor staying on! The purchaser dentistry professional corporation may be operating another professional corporation which it purchased, but it MUST notify the RCDSO that the principal dentist of that other corporation no longer is involved in it; the purchaser will have up to one year to continue using the selling dentist’s name. Realistically, that’s why we have the purchasing dentistry professional corporation amalgamate with the other corporation and carry on business using the purchasing dentistry professional corporation’s name.

Now, with respect to the year ends, if the purchasing dentistry professional corporation had no operations, no income, no assets, no losses, etc., then it will be very easy for its accountant to prepare T2 Short Tax Returns and file it. The year-end of that corporation will be immediately before the amalgamation. This is a clean break. No operations = easy financial statements and tax returns.

And immediately before the two corporations amalgamate, the other corporation (i.e. the subsidiary of the parent corporation) will have its tax year-end.

Finally, at the earliest moment on the day of amalgamation (e.g. 12:01 a.m.), the amalgamated corporation’s fiscal year will start. This puts a nice little bow on everything.

EFFECTIVE DATE

Articles are effective on the date set out in the certificate endorsed on the articles by the Branch. The certificate is dated the day the Director receives the duplicate originals of the articles together with all other required documents executed in accordance with the Act and the required fee, if they are acceptable as per the Branch’s endorsement as of right policy. An effective date of up to 30 days later than the earliest date the articles can be endorsed may be requested in writing, in the covering letter, using bold or highlighted letters, upon submission of the articles to the Branch. If you are presenting your documents in person, you must also verbally bring this request to the attention of the counter clerk.

DMC