Deemed year-end on acquisition of control

Share buyers meet this rule when a purchase gives them control of a target corporation: the target’s tax year is deemed to end immediately before control is acquired. The change flows from acquisition of control, which is a loss restriction event.

What subsection 249(4) does

Under paragraph 249(4)(a), the taxation year that would have included that time is deemed to end immediately before it, and a new year begins. The CRA’s T2 guide says to file a return for the year that ends immediately before control is acquired. Where the prior tax year would otherwise have ended within the seven-day period immediately before control is acquired, paragraph 249(4)(b) lets a corporation elect in its return to extend that year to end immediately before that time. Subsection 249(4) does not apply to certain foreign affiliates that did not carry on business in Canada.

What to ask

• Whether the closing falls within the seven-day period after the end of an established tax year that paragraph 249(4)(b) names, and whether an election will be made
• Who prepares and files the return for the year that ends just before closing
• How the purchase agreement allocates the tax for that short year

The election has exceptions, so read paragraph 249(4)(b) in full. See what changes after closing when you buy shares.