The shareholders of Parent Co. and Sub Co. wish to combine the business activities of the two companies through a business combination. Both companies have assets that have appreciated in value above their capital cost. Parent Co. owns 85% of the shares of Sub Co.
Required:
Suggest a business combination (amalgamation or wind-up) that would defer the tax consequences associated with the increased value of the assets, and explain why you did not choose the other option.

Question

Quizplus · Accepted Answer

The Answer is Parent Co. and Sub Co. can choose to amalgamate in accordance with section 87, which will allow them to transfer the assets at their tax values, thereby deferring any tax consequences. Since Parent Co. owns less than 90% of Sub Co. a wind-up would not allow for a deferral of the tax gains.

The Shareholders of Parent Co