W8 - Share Purchaser AOC

acquisition of control

when person/group acquires de jure control of corporation through ownership of > 50% of voting shares or control BOD

loss restriction event

when unrelated person/group acquires control of corp, triggering restrictions on the use of its accumulated tax losses

purpose of LRE

prevents tax loss trading where someone purchases corp with accumulated tax losses to use against income from unrelated business

consequences of AOC

deemed taxation YE, realization of unrealized losses/reduction in tax cost, LRE, s.111(4)(e)

realization of accrued losses purpose

prevents new shareholders from benefiting from losses that arose before they acquired control

net capital loss carryforward

cannot be carried forward after AOC

non capital loss carryforward

carried forward, but restricted after AOC

non capital loss carryforward conditions

business continuity, income restriction

business continuity

business that generated loss must continue to be carried on with reasonable expectation of profit throughout year

income restriction

pre acquisition business losses can only used against income from same/similar business

unused charitable donations

cannot be carried forward after AOC

s.111(4)(e) election

allows corp to recognize unrealized gains immediately before AOC, even though not actually sold

s.111(4)(e) election purpose

use tax losses before they expire or become restricted due to AOC

reasons to realize gains

recognize capital gain to offset the loss, increase property’s tax cost

methods of election

partial, maximum

partial election purpose

use expiring net capital loss

partial election what is recognized

enough capital gains to offset net capital losses

partial election best when

business continues after AOC

maximum election purpose

use additional non capital losses

maximum election what is recognized

more capital gains and potentially recapture

maximum election best when

business discontinues after AOC