Acquisition of Control (AOC)

What is an acquisition of control?

Happens in one of two situations:

• A majority shareholder (>50%) sells his shares to an arm’s length person, OR

• Through the redemption of shares

AOC only occus when control shifts to an arm’s length party

What does it mean to deal at arm’s length?

Two people or entities are said to be dealing at arm’s length with each other if:

• they are independent and one does not have undue influence over the other

• are not related persons

What are related persons?

• Individuals connected by blood relationship, marriage or common-law partnership/adoption

• A corporation and:

  • A person controling the corporation

  • A person who is a member of a related group that controls the corporation

  • Any person related to a person described

What are the tax implications of an AOC?

• Deemed year-end immediately prior to the AOC (reduces loss CFWDs by 1 year)

• Mandatory recognition of accrued losses (net capital losses and non-capital losses)

What happens to net capital losses after an AOC?

• All net capital losses are lost after acquisition

• Capital losses in the future can’t be carried back to before the AOC

What happens to non-capital losses after an AOC?

Can be carried forward if the following conditions are met:

1. Same business as before the AOC must be carried on with expectation of profit

2. Losses can only be used against income from same or similar business

What kind of election is available after an AOC?

Can deem dispose of assets that have unrecognized capital gains at YE to generate capital gains/recapture to use up losses (focus on non-depreciable property)