Taxation of mergers

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The act of combining two or more organisations into one is what the Oxford Advanced Learner's Dictionary (8th edition, 2010) defines as a "merger." "Merger" is defined as the act or an instance of joining or uniting in Black's Law Dictionary, 7th Edition.

According to the 8th edition of the Oxford Advanced Learner's Dictionary published in 2010, the word "amalgamate" refers to joining two or more entities to create a single entity. When two or more organisations combine or are combined, they become a single, big organisation. Merge and amalgamate are identical terms. According to the seventh edition of Black's Law Dictionary, consolidation is the joining together of two smaller businesses to form a larger organisation.

The definitions given above demonstrate how similar the phrases "merger" and "amalgamation" are and how they may be used interchangeably.

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The business that combines or amalgamates is typically referred to as the "amalgamating company" or "transferor firm." Following the merging, the transferor company's corporate identity vanishes. The "amalgamated company" or "transferee company" is the business into which the merging or amalgamating firm merges or amalgamates.

Income tax repercussions for mergers

When handling a transaction involving a merger or amalgamation of firms, several income tax difficulties and considerations may need to be taken into account. The Income Tax Act of 1961 (the "Act") grants significant tax breaks to the firms taking part in the merger plan as well as to their shareholders.

Amalgamation

When referring to business transactions, the term "amalgamation" refers to the combination of two or more businesses into one new entity in a way that:-

  (a) by virtue of the merger, any liabilities of the merging firm or companies that existed prior to the merger are now liabilities of the merged company;

  (b) by virtue of the merger, the assets of the firm or companies that were merging shortly before the merger are transferred to the merged entity;

  (c) by virtue of the merger, shareholders of the merging company or firms who own at least three-fourths of the value of their shares also become shareholders of the merged company.

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