Subsection 128.1(1) - Immigration
Administrative Policy
17 June 2014 T.I. 2013-0506731E5 - Immigration
An individual shareholder immigrates to Canada, thereby becoming a Canadian resident, and then receives $1,000 from a wholly-owned non-resident corporation ("NRCo") in satisfaction of a $1,000 dividend declared before her immigration. NRCo's shares, which are not taxable Canadian property, have a fair market value of $1,000 before the dividend.
The dividend received by her after immigration would be a dividend to her at common law and under s. 90(2) only when received. The dividend receivable by her at the time of her immigration would be acquired by her under s. 128.1(1) at a cost of $1,000, whereas the shares of NRCo likely would be acquired at a nil cost in light of a dividend payable liability equal to the value of its assets. A loss triggered on NRCo's shares under s. 128.1(1) cannot be used in the post-immigration period by operation of ss. 114 and 111(9).
5 December 2013 T.I. 2013-0485661E5 - U.K. ISA held by a temporary resident of Canada
A UK resident who opened up a a U.K. Investment Savings Account (ISA) which, as a Stock and Shares ISA, invested in shares of non-Canadian companies, then immigrated to Canada, and subsequently emigrated (so that he was a Canadian resident only in the interim).
While in Canada, dividends on the shares would be included in his income under s. 90, as well as taxable capital gains from dispositions of the shares, with the computation of the gains amount reflecting the deemed cost on immigration under s. 128.1(1)(c).
1999 APFF Round Table, Q. 1 (No. 9M19190)
Where an American citizen receives stock options from an American public corporation while working for it and living in the United States, and then became resident in Canada, s. 7 would apply to him if he then disposed of his rights to acquire the shares to a person with whom he was dealing at arm's length. Consequently, the exception in s. 128.1(1)(b)(v) would apply.
Articles
Jack Bernstein, "Impact of Canada's Draft Tax Legislation on Taxpayer Migration", Tax Profile, Vol. 5, No. 30, February 1999, p. 341.
Jack Bernstein, "A Guide for the Emigrating Canadian Resident", 1993 Corporate Management Tax Conference Report, c. 12.
Lanthier, "Corporate Immigration, Emigration, and Continuance", 1993 Corporate Management Tax Conference Report, c. 4.
Richards, "Exit Tax: Corporate Emigration and a Continuance", Canadian Current Tax, August, 1993, p. J13.
Flatters, "Proposed Amendments Relating to Corporate Continuance and Residence", 1993 Canadian Tax Journal, No. 3, p. 567.
Subsection 128.1(4) - Emigration
Administrative Policy
21 April 2015 T.I. 2013-0494251E5 - 128.1(4) and Part XIII tax on future payments
At the time of his emigration from Canada to the US, "Mr. X" was entitled to the "Payments" from a Canadian resident who had purchased a client list for a business previously carried on by Mr. X. The Payments were based on the purchaser's use of the client list and, until emigration, had been included in Mr. X's income under s. 12(1)(g). How does s. 128.1(4)(b) apply?
CRA responded that as Mr. X's right to Payments was "property" (as defined in s. 248(1)) which was not described by the s. 128.1(4)(b) exceptions, he was deemed to have disposed of the right under s. 128.1(4)(b) for proceeds equal to its fair market value.
5 December 2013 T.I. 2013-0485661E5 - U.K. ISA held by a temporary resident of Canada
A UK resident who opened up a a U.K. Investment Savings Account (ISA) which, as a Stock and Shares ISA, invested in shares of non-Canadian companies, then immigrated to Canada, and less than 60 months later emigrated (so that he was a Canadian resident only in the interim).
On emigration, there would be a deemed disposition of the shares under s. 128.1(4)(b), subject to the 60-day rule in 128.1(4)(b)(iv) to the extent that the same shares were held at the time of immigration.
13 September 2012 CICA Roundtable Q. 7, 2012-0453111C6
In response to a query as to whether a taxpayer is deemed pursuant to s. 128.1(4)(b) to dispose of his or her interest in an alter-ego trust upon emigration from Canada, CRA noted that, by virtue of s. (j) of the definition in s. 128.1(10) of "excluded right or interest", that phrase includes an interest in a personal trust resident in Canada that was never acquired for consideration and did not arise as a result of a transfer of property to the trust by that individual that would be a qualifying disposition (if subsection 107.4(1) were read without ss. (h) and (i)); and further noted that s. 108(7) provides, inter alia, that for these purposes a person can contribute to the trust without failing the acquisition for consideration prohibition.
May 1999 CALU Conference No. 9908430 Q. 12
Discussion of guidelines for determining the circumstances in which RC will accept shares of a private company as security.
5 November 1996 T.I. 963459 (C.T.O. "Disposition of a Life Insurance Policy - Emigration")
Discussion of deemed disposition of a life insurance policy.
Articles
Firoz Talakshi, Patrick A. Jackman, "Corporate Migration: A Comparison of Canadian and US Income Tax Rules", 2001 Conference Report.
Cindy Rajan, "Are You Sure You Want To Leave Canada? The New Taxpayer Migration Rules", Personal Tax Planning, 1999 Canadian Tax Journal, Vol. 47, No. 5, p. 1342.
Lee, "Dear Departures", CA Magazine, November 1997, p. 26.
Parks, "New Departure Tax Rules and Related Proposals Create Problems", International Tax Planning, Vol. VI, No. 1, 1997, p. 373.
Couzin, "Departure Tax - Individuals", Bureau for International Fiscal Documentation, Vol. 49, No. 11, p. 532.
Bowman, "Sophisticated Estate-Planning Techniques: Cross-Border Dimensions", 1993 Conference Report, c. 38.
Subsection 128.1(6) - Returning former resident
Paragraph 128.1(6)(c)
Administrative Policy
30 July 2015 T.I. 2013-0494871E5 - Paragraph 128.1(6)(c)
A former resident of Canada (the "Individual") who had continuously owned shares of a corporation (the "Shares"). At the time of his emigration from Canada after October 1, 1996, the "Individual" owned shares which were taxable Canadian property ("TCP"). Such shares ceased to be TCP as a result of amendments applicable after March 4, 2010. Would the election under s. 128.1(6)(c) be available to the Individual upon subsequent immigration to Canada to effectively unwind the departure tax that would have arisen under s. 128.1(4)(b) on emigration and that was deferred under s. 220(4.5)? CRA responded:
Effectively, this [s. 128.1(6)(c)] election adjusts the pre-departure proceeds of disposition and the adjusted cost base of such property on return. …[G]iven that the Shares would have been owned by the Individual throughout the time from emigration to the time of immigration and would not be TCP to the Individual at the time of immigration, paragraph 128.1(1)(b) would deem their disposal because the individual became resident in Canada and, therefore, the election in paragraph 128.1(6)(c) would be available… .[S]uch an election would be with respect to all property that is deemed to have been disposed of by the Individual pursuant to paragraph 128.1(1)(b).
Subsection 128.1(8) - Post-emigration loss
Administrative Policy
24 October 2013 T.I. 2013-0486321E5 - Former taxable Canadian property and 128.1(8).
When Mr. X emigrated from Canada after 1 October 1996, he elected under s. 220(4.5) to defer the payment of the tax resulting from the deemed disposition under s. 128.1(4)(b) of taxable Canadian property for its fair market value. When he subsequently disposed of the property for proceeds which were lower than the property's fair market value at the time of its deemed disposition, the property no longer was "taxable Canadian property" as a result of the narrowing of this definition following the March 2010 budget. CRA stated:
[W]e note that the property sold by Mr. X is not considered to be TCP at the time of its actual disposition, as is required under paragraph 128.1(8)(b). As such, the election described under subsection 128.1(8) would not be available to Mr. X.
Subsection 128.1(10) - Definitions
excluded right or interest
(c)
Administrative Policy
26 February 2014 T.I. 2013-0487961E5 - Excluded Right or Interest
A senior employee of Canco, who is entitled to receive "free shares" from treasury as determined by management, with a vesting period of 4 to 6 years from the grant of the rights. The individual departs from Canada (but remains an employee of Canco) before the end of the vesting period for a portion of the rights.
After noting that an agreement referred to in s. 7(1) "includes any arrangement under which a corporation agrees to issue its shares to one of its employees" (including "for no monetary consideration"), CRA stated:
Since the individual has the right to eventually (at vesting time) be issued the shares granted under the agreement, the definition of "excluded right or interest" is met…and there would be no deemed disposition of such a right on emigration by virtue of subparagraph 128.1(4)(b)(iii).