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Payroll Implications of an Amalgamation Are Different From Those of a Wind-Up

Subject: Payroll Number: 11-01 Date: 1/7/2011

If these special deadlines are not met on the wind-up of the subsidiary into the parent, significant penalties can apply

An amalgamation is considered to be a legal continuation of two or more corporations. A wind-up constitutes a sale of a subsidiary’s assets to a parent corporation and then a subsequent dissolution of the subsidiary.

An often overlooked item, when comparing amalgamations and wind-ups, is the payroll implication.

For EI and CPP purposes, the newly amalgamated corporation is considered to be the same employer as its predecessor corporations. As a result, the normal T4 slip and T4 summary submission deadline of the end of February of the subsequent calendar year continues to apply. For EI and CPP purposes, any employer and employee contributions already made are taken into account in the amalgamated entity, so there is no duplication. As well, the predecessors’ normal payroll remittance deadlines generally apply (subject to the comment below).

The results are different in a wind up. For EI and CPP purposes, the continuing parent is considered to be a different employer than the subsidiary. As a result, the T4 slips and summary for the subsidiary are due within 30 days after the subsidiary has ceased to carry on business. Further, any unremitted source deductions of the subsidiary will be due within seven days after the subsidiary ceases to carry on business. If these special deadlines are not met on the wind-up of the subsidiary into the parent, significant penalties can apply. For both amalgamations and wind-ups, the prior deductions at source of the predecessor corporations (or parent and subsidiary) are taken into account in determining what the continuing entity’s remittance deadline will be. Generally speaking, if the average monthly withholding amount of the combined entity becomes greater than $15,000 the remittance deadline will be accelerated from the 15th of the following month to a quicker remittance schedule depending on the facts.

The payroll implications of amalgamations and wind-ups are different and often overlooked. It is important to consider this issue when evaluating the two alternatives.

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