Corporate Amalgamation Cost and Tax Calculator
Carrying an inactive opco alongside a holdco means two sets of filings, two sets of fees and two year ends for one business. Work out what an amalgamation costs, when it pays for itself, what happens to the losses, and whether a wind-up would be cheaper.
one-off cost to combine
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What It Costs
| Item | Basis | Amount |
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The Dates That Follow
| Event | Rule | Date |
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Losses and Tax Attributes
| Attribute | Treatment on Amalgamation | Position |
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Amalgamation Against a Wind-Up
| Point of Comparison | Amalgamation, Section 87 | Wind-Up, Subsection 88(1) |
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Points That Decide This
What to Do Next
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Disclaimer: Section 87 applies where two or more taxable Canadian corporations merge so that all of the property and liabilities of the predecessors become those of the new corporation and all of the shareholders receive shares of the new corporation. Paragraph 87(2)(a) treats the new corporation as a new corporation whose first taxation year begins at the amalgamation, so each predecessor has a taxation year deemed to end immediately before it and a final T2 is required, due six months after that deemed year end. Subsection 87(2.1) makes the non-capital losses of a predecessor available to the amalgamated corporation, subject to the restrictions in subsection 111(5) where control has been acquired, in which case the losses may only be applied against income from the same or a similar business carried on with a reasonable expectation of profit. Non-capital losses carry forward twenty years. Under subsection 88(1) a subsidiary may be wound up into a parent that owns at least 90% of each class of its shares, and subsection 88(1.1) makes the subsidiary’s non-capital losses available to the parent only in a taxation year of the parent commencing after the wind-up commenced. Short-form amalgamations under section 177 of the Business Corporations Act (Ontario) and section 184 of the Canada Business Corporations Act are available for a holding corporation and its wholly owned subsidiaries or for wholly owned subsidiaries of the same holding body corporate, and do not require shareholder approval. Government filing fees and professional fees used here are estimates current when this page was built and should be confirmed before you budget. This page is general information, not tax advice.
Two Corporations, One Business, Two of Everything
The usual position is an operating company that stopped operating, sitting beside the company that now does the work, or a holdco and an opco where the opco has been dormant for years. Nothing is wrong with it, but each entity carries a year end, a T2, an annual return, a bookkeeping file and a set of professional fees, and the second set buys nothing.
Amalgamation merges them into a single corporation. The property and liabilities pass automatically, no rollover election is needed, and the result is one entity with one year end.
The saving is real but it is not large, so the decision usually turns on something else. Losses trapped in one company, a shareholders agreement that has become unworkable across two entities, or a sale where the buyer wants one target are the reasons that actually drive these files. The fee saving is what makes an otherwise marginal decision easy.
What Section 87 Requires
The tax rules apply automatically where the merger meets the definition. There is no election to file.
- All the corporations must be taxable Canadian corporations, which is what makes the rollover treatment available.
- All the property and liabilities of the predecessors must become those of the new corporation, other than amounts owing between them.
- All the shareholders must receive shares of the new corporation, other than shares already held by another predecessor.
Where those are met, property carries over at cost, shareholders roll their shares at their existing adjusted cost base, and no disposition arises. Where they are not met, the merger is treated as a disposition and the whole point is lost.
A Deemed Year End Is the Part People Forget
Paragraph 87(2)(a) treats the amalgamated corporation as a new corporation whose first taxation year begins at the amalgamation. Each predecessor therefore has a taxation year deemed to end immediately before, and each one needs a final T2 covering that short period.
That short year has consequences beyond the filing. Capital cost allowance is pro-rated for the number of days, the small business limit is pro-rated the same way, and instalment obligations restart for the new corporation. The final returns are due six months after the deemed year end, which is a date nobody has in their calendar because it is not the usual one.
| Event | Rule | Example on a 1 January Amalgamation |
|---|---|---|
| Predecessors’ deemed year end | Immediately before the amalgamation | 31 December |
| Final T2 for each predecessor | Six months after the deemed year end | 30 June |
| Amalco’s first taxation year begins | At the amalgamation | 1 January |
| Amalco’s first year end | Chosen, up to 53 weeks later | 31 December following |
| Amalco’s first T2 | Six months after its first year end | 30 June the year after |
Timing the amalgamation to the day after an existing year end avoids a stub period entirely. Amalgamating on the first day of what would have been the next fiscal year means the deemed year end lands on the ordinary one, the final T2 is the return that was being prepared anyway, and no pro-rating is needed. It is the single cheapest decision on the whole file and it costs nothing to plan for.
Losses Survive, Unless Control Changed
Subsection 87(2.1) makes the non-capital losses of each predecessor available to the amalgamated corporation, keeping their original twenty-year clock. Where no control was acquired, they can be applied against any income of the amalgamated corporation, which is usually the reason the amalgamation is being done at all.
Where control was acquired, subsection 111(5) restricts them. The losses survive but can only be applied against income from the same or a similar business, carried on with a reasonable expectation of profit. A dormant corporation whose business has ceased usually cannot satisfy that, and its losses become unusable in practice.
| Attribute | What Happens |
|---|---|
| Non-capital losses | Flow to Amalco, original 20-year clock, restricted only on an acquisition of control |
| Net capital losses | Flow through, but expire permanently on an acquisition of control |
| Capital dividend account | Balances combine |
| Refundable dividend tax on hand | Balances combine |
| General rate income pool | Balances combine |
| Paid-up capital | Carries over on the new shares |
| Undepreciated capital cost | Carries over, pro-rated for the short year |
Amalgamation Against a Wind-Up
Where one corporation owns at least ninety per cent of each class of the other’s shares, a wind-up under subsection 88(1) does much the same job. It avoids the articles of amalgamation and the government filing fee, and for a dormant subsidiary with nothing in it, that is often the cheaper route.
The difference that matters is timing on the losses. Subsection 88(1.1) makes the subsidiary’s non-capital losses available to the parent only in a taxation year of the parent that begins after the wind-up commenced, which delays them by up to a year. On an amalgamation they are available in Amalco’s first taxation year.
Sister corporations cannot be wound up into each other. Subsection 88(1) requires a parent that owns ninety per cent of the subsidiary, so two companies owned by the same person with no share ownership between them have amalgamation as the only route. That single fact decides the question on a large share of these files.
Short Form Is Much Cheaper Than Long Form
A short-form amalgamation is available for a holding corporation and its wholly owned subsidiaries, or for two or more wholly owned subsidiaries of the same holding body corporate. It needs a director’s resolution rather than a shareholders’ special resolution, and it skips the amalgamation agreement and the approval mechanics entirely.
A long-form amalgamation, needed wherever the shareholdings are not aligned, requires an amalgamation agreement, a special resolution of each class of shareholders of each corporation, and dissent rights. The professional fees are roughly double and the timeline is longer.
What Else Has to Be Dealt With
- A new business number and program accounts, since the amalgamated corporation is generally a new entity for CRA purposes
- The HST account, which needs to be transitioned rather than simply abandoned, along with any open periods
- Payroll accounts, and the T4 reporting split across the predecessors and the amalgamated corporation
- Bank accounts, contracts and leases, which pass by operation of law but which counterparties often want re-papered anyway
- Licences and registrations, including WSIB and any extra-provincial registrations
- Where jurisdictions differ, a continuance of one corporation into the other’s jurisdiction before the amalgamation can happen at all
What This Calculator Does Not Cover
- Legal fees specific to your situation, which vary with the share structure and the number of classes
- Whether an acquisition of control has occurred, which is a legal question and often the decisive one
- Safe income and the surplus analysis, where a dividend is planned before or after the merger
- Debt owing between the corporations, which needs handling before the merger to avoid a forgiveness problem
- Section 85 rollovers, which are a different route to a similar place where a full merger is not wanted
- Provincial payroll, sales tax and licensing consequences of the entity change
The cheapest version of this is planned around an existing year end, not done in the middle of one. Our holding company tax planning service covers the structure review, the amalgamation or wind-up decision, the final returns and the account transitions.
Frequently Asked Questions
Common questions on merging two corporations in Ontario.
Related Calculators and Guides
More tools for owners carrying more than one corporation.
Combine Them at the Year End, Not in the Middle of One
Send us the last two T2s for each corporation, the share registers and the loss balances. We will confirm whether amalgamation or a wind-up is the right route, time it to your existing year end, prepare the final returns and transition the CRA accounts.