Federal Budget Significantly Reduces Section 116 Requirements

In the 2010 Federal Budget, the Department of Finance announced a significant, and very welcome, amendment to the Income Tax Act (Canada) (the "Tax Act"), which should greatly facilitate non-resident investment into Canada. In general, this amendment will eliminate the need to obtain clearance certificates under section 116 of the Tax Act on the disposition of shares of most Canadian corporations.

Under the current provisions of the Tax Act, all shares of Canadian private corporations, and shares of Canadian public corporations where the holder and non-arm's length persons own 25% or more of a class of shares, are considered to be "taxable Canadian property". As a result, on the disposition of such shares the vendor must comply with the notification requirements of section 116 of the Tax Act, and will be liable for Canadian tax on any capital gain, unless such capital gain is exempted by virtue of an applicable income tax convention. In addition, in certain