Section 48.1

Subsection 48.1(1) - Gain when small business corporation becomes public

Administrative Policy

26 September 1996 External T.I. 9627665 - ELECTION TO CRYSTALIZE GAINS ON GOING PUBLIC

S.48.1 will not be available to individuals who hold shares of a Canadian-controlled private corporation that amalgamates with a public corporation because the amalgamated corporation would be deemed to be a public corporation by virtue of s. 87(2)(ii) of the Act rather than by virtue of a listing of its shares.


Martin Lee, Manu Kakkar, Thanusan Raveendran, "Section 48.1: TOSI Trap in Going Public", Tax for the Owner-Manager (Canadian Tax Foundation), Vol. 20, No. 1, January 2020, p. 4

TOSI rules have resulted in the s. 48.1(1) election being less frequently desirable
  • An election under s. 48.1(1) (where available) deems the electing shareholders to have disposed of their shares of a small business corporation for proceeds equalling the amount specified in the election. Capital gains from dispositions of qualified small business corporation (QSBC) shares are not subject to the tax on split income (TOSI). However, it may be advantageous to trigger a capital gain under subsection 48.1(1) even if the shares are not QSBC shares—for instance, to utilize tax attributes such as expiring losses.
  • The expanded "split income" definition includes taxable capital gains from the disposition of all non-QSBC private corporation shares realized, or deemed to be realized, by most Canadian residents. Thus, it may no longer be beneficial to trigger a capital gain under s. 48.1(1) where the shares are not QSBC shares, unless one of the other excluded-amount exclusions applies.