Section 48.1

Table of Contents

Section 48.1
Subsection 48.1(1) - Gain when small business corporation becomes public
Administrative Policy(2)
Articles(1)

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

Administrative Policy

4 December 2000 External T.I. 2000-0001715 F - Qualified small business corporation share

s. 48.1 election could be made respecting the accrued capital gain on shares that ceased to be QSBCS on a narrowing of the CCPC definition re a connected corp.

Substantially all of the assets of a private corporation (Holdco) were the shares of a connected corporation (Opco) carrying on a Canadian active business. A majority of the shares of Opco were held by a corporation with a class of listed shares. Opco ceased to qualify as a Canadian-controlled private corporation (CCPC) with the enactment of the para. (c) exclusion in the CCPC definition, so that the shares of Holdco ceased to qualify as qualified small business corporation shares.

CCRA confirmed that the s. 48.1 election could be made respecting the accrued capital gain on the Holdco shares when this occurred.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Canadian-Controlled Private Corporation - Paragraph (c) para. (c) relevant where Holdco’s asset was shares of Opco but Opco shares also were held by Pubco 74

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.

Articles

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.

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