Part 3A - Subsection 88(1): Winding-up a 90% Owned Subsidiary
In the absence of a rollover, the dissolution of a corporation would be treated as if the corporation had sold all of its property at FMV to its shareholders in exchange for the shareholders' shares.
Subsection 88(1) provides a rollover on the dissolution of certain 90% owned subsidiaries.
The requirements are as follows:
1. The corporation being dissolved (the "subsidiary) must be a taxable Canadian corporation;
2. Not less than 90% of the issued shares of each class of capital stock of the subsidiary must be owned by another taxable Canadian corporation (the "parent") immediately before the winding-up; and
3. All of the shares of the subsidiary that are not owned by the parent must be owned immediately before the winding-up by persons with whom the parent was dealing at arm's length.
When the requirements of subsection 88(1) are met, the following apply:
1. The subsidiary's POD for assets distributed to the parent are:(a) for a Canadian or a foreign resource property, nil;2. The Parent is generally deemed to acquire the assets of the subsidiary at a cost base equal to the subsidiary's deemed POD.
(b) for any other property, the cost amount to the subsidiary of the property, ie. ACB or UCC if depreciable property.
3. The Parent's POD for the disposition of the subsidiary's shares under paragraph 88(1)(b) is deemed to be the greater of:(a) the lesser of:
(i) the PUC of its shares in the subsidiary; and
(ii) the cost amount of property transferred by the subsidiary less the liabilities assumed by the parent, and
(b) the ACB to the parent of the shares in the subsidiary.