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ARTICLE · 21 JANUARY 2013

Relieving And Clarifying Changes To Canadian Basis Bump Rules

Blake, Cassels & Graydon LLP
Blake, Cassels & Graydon LLP
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On December 21, 2012, the Minister of Finance released for consultation draft legislative proposals (the December 21 Proposals) to implement certain technical amendments to the Income Tax Act (Canada) (the ITA).

CanadaGovernment, Public Sector
Paul Stepak
Paul Stepak
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On December 21, 2012, the Minister of Finance released for consultation draft legislative proposals (the December 21 Proposals) to implement certain technical amendments to the Income Tax Act (Canada) (the ITA). Included in the December 21 Proposals are draft changes to the Canadian basis "bump" rules. Such changes are, for the most part, relieving in nature and should reduce uncertainty and risk when utilizing the bump. The government has invited comments by February 19, 2013.

THE BASIS BUMP

Typically, a purchaser seeking to acquire a Canadian target corporation (Target) will form a Canadian acquisition company (Canco) to acquire the shares of Target, following which Canco will amalgamate with Target (to form Amalco), or, less frequently, Target will be wound-up into Canco. Such a merger allows for the push-down of acquisition financing (Canada has no tax consolidation) and the step-up of cross-border paid-up capital (PUC), subject to the application of the

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