A valuable planning tool for purchasers of Canadian
companies, the Canadian tax “bump” allows the cost
basis of certain corporate assets to be increased (under certain
conditions) to their fair market value. This may facilitate an
internal reorganization or a potential sale of the
“bumped” assets to a third-party on a tax-free
basis.
The bump is frequently relied upon by non-resident purchasers
who wish to extract foreign subsidiaries from a Canadian target
company on a tax-free basis so as to prevent future Canadian tax on
dividends flowing from the foreign subsidiaries through Canada, and
potential Canadian capital gains tax on any sale of the shares of
the foreign subsidiaries in the future.
