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What is a Section 87 Amalgamation?

February 20, 2013

Tax Question:

What is a section 87 corporate amalgamation?


Many company owners have more than one business or purchase other companies as they grow their empire. The organization structure may become cumbersome and inefficient resulting in the company owner looking at simplifying things by combining companies. Alternatively, two independent companies may decide they want to combine their activities into one. In both these scenarios, a section 87 merger will help restructure the organizations without incurring taxes.


Generally, when the assets of one company are sold to another company, a gain or loss on the disposition has to be calculated which often leads to a tax bill. The selling company then has to be wound up, adding to the administration costs and professional fees. Finally, any carryover losses held by the old company that is not utilized will be lost.

Section 87 allows the two companies to be amalgamated into a new one. The shareholder of the old companies exchanges his old shares for new shares in the new company. There is no change in the cost base of the shares. Unlike some of the other rollover sections, the only consideration the shareholders can receive shares. So conceptually the shareholder has not really disposed of anything; he has just swapped shares while retaining the same businesses. Therefore, it would be unfair to tax such a transaction.

The newly amalgamated company would consist of the assets and liabilities of the old companies. For example, if the old companies each owned vehicles costing $25,000 and $10,000, the new company now owns both vehicles and reports the cost of these vehicles as being $35,000. Likewise, if the cost of the shares of both companies were $100 each, the shareholder will now own shares with a cost of $200 in the new company. Section 87 allows this amalgamation to be done at cost, thus deferring tax. In addition, any loss carryovers held by the old companies are passed on to the amalgamated company. The new company is viewed as a continuation of the old companies.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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