Question
Canada does not have a consolidated corporate filing system. Canada has attempted to accommodate taxpayers with diverse corporate groups by providing a great deal of latitude in intercorporate planning designed to use losses triggered through normal commercial operations within a corporate group without restricting the access to those losses in any general way.
Now that the CRA is administering some additional provincial tax regimes (for example, Ontario’s), there has been more discussion about the consideration of provincial allocation changes in the course of any kind of loss-consolidation transactions. Are there any recent changes to the CRA’s approach to reviewing loss‑consolidation transactions? Does it matter if the provincial allocation changes in the course of the loss consolidation?
Response
The CRA’s position with respect to loss-consolidation transactions within a corporate group remains essentially as stated at previous Canadian Tax Foundation conferences.
The CRA will continue to monitor the interprovincial effects of loss-consolidation transactions. If a typical loss-consolidation transaction results in an incidental shifting of income or losses between provinces, simply because the profitco and the lossco happen to have different provincial allocations, there should not be a concern from the perspective of agreeing provinces. If, on the other hand, the transactions are designed to deliberately shift income or loss between provinces, provincial concerns will have to be considered.