able to claim any expenses that a 
predecessor corporation could have 
claimed as its own expenses. Since the 
successor corporation rules apply to 
an amalgamation unless the exception 
applies, it is advisable, if possible, to 
implement a corporate reorganization so 
that it is an amalgamation that qualifies 
for the exception. 

Wind-Ups 

The ITA permits a tax-deferred wind-up 
of a Canadian subsidiary into its parent 
where certain conditions are met. (This 

provision is discussed later in 

Structuring 

Mining Investments – Corporate 
Reorganizations.

) 

Where a parent winds up a subsidiary 
corporation in accordance with the 
tax-deferral rules, the parent is deemed 
to be the same corporation as, and 
a continuation of, the subsidiary. As 
a result, the parent can claim the 
resource-related deductions of the 
subsidiary under the SC rules. Even if 
the subsidiary’s own resource-related 
expenses at the time of winding up 
exceed the fair market value of the 

resource properties of the subsidiary, 
the parent will be entitled to deduct the 
full amount of those expenses.

Where a corporation is wound up and 
the tax-deferral rules do not apply, 
the wound-up corporation is deemed 
to have distributed all of its resource 
properties at their fair market value. If it 
is possible for the wound-up corporation 
to transfer all or substantially all of its 
Canadian or foreign resource properties 
to one corporation, that person could be 
a successor corporation to the wound-
up corporation. 

Structure Allowing for a Qualifying Amalgamation of Wholly Owned Subsidiaries

Ms A owns all of the outstanding shares of Corporation B, Corporation B owns all of the outstanding shares of 
Corporation C, and each of Ms A and Corporation B owns 50% of the outstanding shares of Corporation D.  
The corporate organization is as follows:

Corporation D

Ms A

Corporation B

Corporation C

50%

50%

100%

100%

• Ms A is the “parent.”
• Corporation B is a subsidiary wholly owned corporation of Ms A. 
• Corporation C is a subsidiary wholly owned corporation of Ms A. 
• Corporation D is a subsidiary wholly owned corporation of Ms A.
• Corporation C is a wholly owned subsidiary of Corporation B.

Since all of the corporations are subsidiary wholly owned corporations of Ms A, any amalgamation of two or more 
of the corporations will satisfy the conditions for the exception to apply and will not be subject to the limitations 
of the SC rules.

EXAMPLE 2

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affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

 

Deductions, Allowances, and Credits 

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