Section 219.1


Lanthier, "Corporate Immigration, Emigration, and Continuance", 1993 Corporate Management Tax Conference Report, c. 4.

Talakshi, "Corporate Migration", 1991 Canadian Petroleum Tax Journal, Spring 1991, p. 53.

Boultbee, "Change of Residence and Continuance", 1984 Canadian Tax Journal, p. 792.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 88.1 0

Subsection 219.1(1)


Jim Samuel, Byron Beswick, "Selected Issues in Transactions Involving Debt", 2019 Conference Report (Canadian Tax Foundation), 18:1 – 27

Textual interpretation suggests that the “amount” of debt for s. 219.1 purposes is its FMV (p. 18:20)

Pursuant to subsection 219.1(1), a corporation that emigrates from Canada is liable for tax (“departure tax”) equal to 25 percent of the amount, if any, by which the aggregate FMV of its properties before the emigration time exceeds the total of (1) the paid-up capital (PUC) of the corporation’s shares and (2) the total of all amounts each of which is “a debt owing by the emigrating corporation, or an obligation of the emigrating corporation to pay an amount, that is outstanding at that time.”

… “Amount” [as] defined in subsection 248(1) … is notably broad, and it refers in particular to the “value” of a right or thing. Combined with the fact that section 219.1 uses the term “amount” of a debt and not its “principal amount” … the text of subsection 219.1(1) suggests that the amount of a debt for departure tax purposes might not be intended to be limited to the principal amount of the debt.

Contrary interpretation could foster avoidance (pp. 18:20-21)

A purposive analysis of section 219.1 also appears to support the foregoing interpretation; if it did not, it appears that the application of the formula in section 219.1 might allow departure tax to be avoided, … [A] corporation borrows $100 with a fixed interest rate and lends the proceeds to another entity in the corporate group … . [I]nterest rates … increase, such that the corporation’s debts (both receivable and payable) have an inherent trading discount of $5. If the corporation emigrates from Canada at that subsequent time, it is relatively clear that the FMV of its debt receivable, for the purposes of subsection 219.1(1), should be $95. However, if the “amount” of the corporation’s debt obligation is equal to the principal amount of the debt ($100), it appears that the corporation could avoid departure tax for which it otherwise might be liable if the trading discount on the debt payable were taken into consideration, even though the net FMV of the debts receivable and payable, considered in isolation, is nil.

Subsection 219.1(3)

Subsection 219.1(4)

Administrative Policy

2017 Ruling 2016-0643931R3 - PUC reinstatement on emigration

post-acquisition sandwich structure exited through using the s. 88(1)(d) bump in combination with a continuance outside Canada

A non-resident partnership (Partnership 1) and its non-resident co-investors wished to acquire a Canadian public-company target (Target), whose only significant assets were non-resident subsidiaries (Subcos 1 and 2), and then eliminate this sandwich structure through the distribution of the Subcos to them.

Accordingly, they capitalized a Canadian Buyco (Parent), which acquired the shares of Target under a Plan of Arrangement for cash (or, in the case of the only shareholder of Target who was a specified shareholder, for a combination of cash and shares of Parent). Parent then amalgamated with Target and the Subco shares were bumped under s. 88(1)(d) – but with the bump amount being reduced by any Subco surpluses described in Reg. 5905(5.4).

Distributing the bumped Subco shares out of Amalco to the non-residents would have attracted a FIRPTA-style tax in the local tax jurisdictions for the Subcos. This local tax was proposed to be avoided by continuing Amalco to a jurisdiction of convenience for the non-residents (perhaps, Delaware). In particular, Amalco will file an application under the relevant Canadian Business Corporations Act to continue out of that jurisdiction and into the non-resident jurisdiction as if it had been incorporated under the latter’s laws (the “Continuation”). Under such laws

  1. the property, rights and interest of Amalco (pre-Continuation) continue to be the property, rights and interests of Amalco (post-Continuation);
  2. Amalco (post-Continuation) continues to be liable for the obligations of Amalco (pre-Continuation);
  3. an existing cause of action, claim or liability to prosecution is unaffected by the Continuation;
  4. a legal proceeding being prosecuted or pending by or against Amalco (pre-Continuation) may be prosecuted or its prosecution may be continued, as the case may be, by or against Amalco (post-Continuation); and
  5. a conviction against, or a ruling, or judgment in favour of or against, Amalco (pre-Continuation) may be enforced by or against Amalco (post-Continuation).

The bump minimized the s. 128.1(4) tax on emigration. CRA ruled that the Parent paid-up capital, which had been ground under s. 212.3(7)(c), was reinstated under s. 219.1(4) for purposes of computing the s. 219.1 emigration tax (assuming that the FMV of the Subco shares was not lower than this reinstatement amount).

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 5905 - Subsection 5905(5.4) bump of non-resident subsidiaries reduced by applicable surplus balances 635
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1) bottom corporation in a vertical amalgamation was specified to be the survivor in order to avoid a disposition under the local tax laws re its subsidiary 126