Posted on December 14th, 2023 in Domestic Tax

REVIVAL OF A CORPORATION: Tax Collection

Time and stack of coins.

A June 12, 2023, Court of King’s Bench of Alberta case reviewed CRA’s application to revive a corporation dissolved in 2020. The former sole shareholder opposed the application. The corporation’s capital losses (as quantified during an audit of the 2013 and 2014 years) were used in 2017 and 2018. CRA sought to revive the corporation and issue notices of assessment for 2017 and 2018.

Revival granted

Under the Alberta Business Corporations Act, a creditor has standing to ask that a dissolved corporation be revived. While taxpayers remain liable for tax when income is earned, the liability does not become a debt until taxes are assessed. As no notice of assessment had been issued, CRA had no standing as a creditor. They would only become a creditor if they issued a notice of assessment. This created a circularity issue as an assessment could not be issued to a dissolved corporation. However, the Court has the power to designate someone as an “interested person,” allowing the designated person to revive a dissolved corporation. The Court found that CRA had a valid interest in the revival and sought this remedy to further its interest; that is, to issue a notice of assessment to convert the taxpayer’s liability for taxes into a debt. While the revived corporation would have no assets, no property, no directors, and no shareholders, a dissolved corporation that has been revived is deemed to always have existed. CRA argued that they could pursue the former shareholders on the basis that assets were transferred on dissolution to non-arm’s length parties for less than fair market value consideration. Similar rules are applicable in other provinces.

ACTION ITEM: Dissolving a corporation may not protect former shareholders from CRA taking measures to collect a tax debt.

Article originally published in: Tax Tips & Traps 2023 Fourth Quarter – Issue 144.