2013-0494871E5 Paragraph 128.1(6)(c)

Principal Issues: Is the election in paragraph 128.1(6)(c) available to an individual who is a returning former resident of Canada in respect of shares of a corporation that, at the time of emigration, were taxable Canadian property and that, at the time of immigration, were no longer taxable Canadian property?

Position: Yes

Reasons: To the extent that the shares, owned by the returning former resident of Canada from the time of emigration to the time of immigration, were not taxable Canadian property at the time of immigration and the other conditions of paragraph 128.1(6)(c) were met, the election in paragraph 128.1(6)(c) would be available to the individual.

Author: Chang, Jack Yu-Fan
Section: 128.1(1), (4) and (6), 220(4.5), and definition of “taxable Canadian property” in 248(1)

XXXXXXXXXX                                2013-049487
                                                        Jack Chang

July 30, 2015

Dear XXXXXXXXXX:

Re: Returning Former Resident of Canada and Paragraph 128.1(6)(c)

We are writing in response to your email of June 25, 2013, in which you requested our views on the application of paragraph 128.1(6)(c) of the Income Tax Act (the “Act”) to a particular situation. In your email, you described a hypothetical situation involving the return to Canada of a former resident of Canada (the “Individual”) who had continuously owned shares of a corporation (the “Shares”). At the time of emigration, being after October 1, 1996, the Shares were taxable Canadian property (“TCP”) to the Individual, as defined in subsection 248(1) of the Act as it read at that time. Whereas, as a result of amendments to the definition of TCP in subsection 248(1) that are applicable after March 4, 2010, the Shares were no longer TCP at the time of immigration. More specifically, you queried whether the election under paragraph 128.1(6)(c) would be available to the Individual upon immigration to effectively unwind, either partially or wholly, the departure tax that would have arisen under paragraph 128.1(4)(b) on emigration and that would have been deferred under subsection 220(4.5).

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Under paragraph 128.1(6)(c), a former resident individual, other than a trust, returning to Canada may file an election in respect of each property that is deemed, pursuant to paragraph 128.1(1)(b), to have been disposed of because the individual became resident in Canada and which the former resident owned on emigration and throughout the non-resident period. Effectively, this election adjusts the pre-departure proceeds of disposition and the adjusted cost base of such property on return. As a result, in the hypothetical situation outlined in your email, given that the Shares would have been owned by the Individual throughout the time from emigration to the time of immigration and would not be TCP to the Individual at the time of immigration, paragraph 128.1(1)(b) would deem their disposal because the individual became resident in Canada and, therefore, the election in paragraph 128.1(6)(c) would be available to the Individual in respect of the Shares to the extent the other conditions of paragraph 128.1(6)(c) would be met. We would note, however, that such an election would be with respect to all property that is deemed to have been disposed of by the Individual pursuant to paragraph 128.1(1)(b).

We trust these comments are of assistance.

Lori M. Carruthers CPA, CA
Section Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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