Times of economic uncertainty produce both challenges and opportunities for businesses, some of which are more obvious and urgent than others. Reduced valuations create various possibilities for corporate restructurings and spin-outs, asset extractions, and tax planning, for example. Merger and acquisition activity involving companies with accrued losses that can be used by an arm’s-length purchaser is also a potential opportunity for knowledgeable buyers. Conversely, businesses in financial difficulty should be aware of a number of tax pitfalls (e.g., debt restructuring, cancelling contracts, reducing headcount), some of which are not easy to spot. Creditors of such businesses will also have tax issues of their own. As with most things, to be forewarned is to be forearmed.
This paper identifies the most important issues businesses face under the Income Tax Act (Canada) in the context of a challenging economic environment.