Section 87, paragraph 4 of the Income Tax Act provides for shareholders holding shares in predecessor companies as financial assets, with an automatic transfer of the adjusted cost base of those shares to the new merged shares received. Under paragraph 87, paragraph 4, point a), a shareholder of a predecessor company is considered to be ceding old shares for products corresponding to the adjusted cost base of the shares of the previous company just prior to the merger and is considered, in accordance with paragraph 87, paragraph 4, point b), as an acquisition of new shares (in the new company) at a price equal to that corresponding to the proceeds (of the old shares). Article 87, paragraph 4, applies to shareholders whose shares are held as assets; 2. Shareholders receive only stakes in the merged company in exchange for their shares in the company that preceded it; and (3) no benefits are granted to persons related as a result of the merger. The rollover rules in subsection 87 (4) do not apply to non-qualifying concentration operations. Therefore, a rollover in accordance with Section 87 (4) only applies if the conditions of subsection 87 (1) are met. Business concentrations are generally referred to as “mergers” in Canada; However, this shortcut masks the fact that, under Canadian corporate law, unlike Delaware, the concept of “merger” does not exist. On the contrary, the statutes of Canadian companies provide for several different alternatives for “merger,” including mergers that are generally considered a functional equivalent of Delaware mergers. According to section 248, paragraph 1 of the Income Tax Act, the “transfer” of a property includes transactions and events “in which the property is a share, the share is converted as a result of a merger or merger.” This means that the conversion of shares resulting from a merger under paragraph 87 constitutes an assignment under paragraph 248, paragraph 1 of the Income Tax Act. Therefore, when the shares of previous companies are exchanged by merger for shares of the new company, the shareholders of previous companies are considered sold. In order to ensure that a merger application is processed, all merged capital companies must be integrated into the CBCA.
This means that one of the companies, when included in another status, must first enter the CBCA (see continuity (import) of a registered business before it can partner with other capital companies.