Profit Ltd., a Canadian public corporation owns 85% of the shares of Loss Ltd. Profit Ltd. has

Question:

Profit Ltd., a Canadian public owns 85% of the shares of Loss Ltd. Profit Ltd. has a December 31 year end while Loss Ltd. has a July 31, year end. The fair market value and tax value of the non-depreciable assets owned by Loss Ltd. total $8,000,000 and $3,000,000, respectively. The values have increased substantially from their $5,000,000 value at the time Profit Ltd. acquired Loss Ltd. The shares of Loss Ltd. are currently worth $10,000,000 and have an ACB of $4,000,000. Profit Ltd. wants to use the losses of Loss Ltd. to reduce its taxable income. Profit Ltd. and Loss Ltd. will be combined on August 1st of the current year. Income tax reference: ITA 87, 88.
Should a windup of Loss Ltd. into Profit Ltd. or an amalgamation of Profit Ltd. and Loss Ltd. be used to combine the two corporations? Explain why.
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...