{"id":38073,"date":"2025-09-15T11:34:04","date_gmt":"2025-09-15T15:34:04","guid":{"rendered":"https:\/\/www.millerthomson.com\/?p=38073"},"modified":"2025-09-24T13:09:02","modified_gmt":"2025-09-24T17:09:02","slug":"leaving-canada-what-corporations-need-to-know-about-exit-taxes-and-continuance","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/corporate-tax\/leaving-canada-what-corporations-need-to-know-about-exit-taxes-and-continuance\/","title":{"rendered":"Leaving Canada? What corporations need to know about exit taxes and continuance"},"content":{"rendered":"\n

Corporations resident in Canada may consider moving their place of residence to another jurisdiction for a variety of reasons \u2013 whether to access new markets, tax rate arbitrage or to mitigate the impact of tariffs. Under Income Tax Act<\/a><\/em> <\/em>(Canada) (the \u201cAct\u201d), however, corporate emigration can trigger significant tax consequences, including a deemed disposition of assets and potential exit charges.<\/p>\n\n\n\n

With tariff uncertainty and renewed pressure on cross-border competitiveness, this article highlights the key rules, risks, and planning opportunities that Canadian companies should understand before making such a move.  <\/p>\n\n\n\n

Corporate emigration from Canada: Different scenarios, different rules<\/h2>\n\n\n\n

The tax and legal consequences of corporate emigration are not uniform. They depend on the corporation\u2019s status, structure, and objectives. In practice, different situations call for different approaches. Below we outline the main scenarios and the actions they typically require.<\/strong><\/p>\n\n\n\n

1. Corporations incorporated outside of Canada<\/h3>\n\n\n\n

For a corporation incorporated outside of Canada but resident in Canada under common law by virtue of having its central management and control in Canada, shifting central management and control to another jurisdiction will suffice to effect emigration. However, if \u00a0the corporation was incorporated in Canada after April 26, 1965, emigration also requires continuing the corporation under the corporate law of the new jurisdiction (subsection 250(5.1) of the Act. The continued corporation will be deemed to have been incorporated in that other jurisdiction from the time of continuation. Tie-breaker rules under any applicable tax treaty also must be considered.<\/p>\n\n\n\n

2. Corporations that cease to be resident in Canada<\/h3>\n\n\n\n

Where a corporation ceases to be resident in Canada, subsection 128.1(4) of the Act\u00a0will result in a deemed disposition and reacquisition of property at fair market value. The deemed disposition will cause the corporation to realize any inherent capital gains or losses. In addition, section 219.1 of the Act. imposes a tax on the corporation itself in an amount that is equal to 25% of the excess of the total fair market value of the corporation\u2019s property over the total of the paid-up capital of its shares and all outstanding debt. The 25% rate may be reduced to the rate for dividends under the tax treaty between Canada and the destination jurisdiction. However, the reduced rate will not apply if one of the main purposes of the emigration was to reduce tax under Part I or under Part XIII (section 219.1) of the Act.\u00a0<\/p>\n\n\n\n

3. Consequences for shareholders<\/h3>\n\n\n\n

If a corporation emigrates, its shareholders would generally not be considered to have disposed of their shares in the emigrating corporation. Consequently, the shareholders should not realize a gain or loss (see for example, CRAViews, Ruling, 2005-0147131R3 — Continuance\u2014Subdivision i). Furthermore, the continuance should have no effect on the Adjusted Cost Base (\u201cACB\u201d) of a Canadian resident shareholder\u2019s shares in the emigrating corporation (see for example the emigration of TPCO Holdings Corp.<\/a>)<\/p>\n\n\n\n

4. M&A transactions: Using the Section 88(1)(d) bump<\/h3>\n\n\n\n

In the context of a merger and acquisition transaction, it may be possible to reduce capital gains realized on continuance with a bump in tax cost under section 88(1)(d) of the Act. For this type of planning to be effective, the accrued capital gains must be associated with non-depreciable property such as land or shares and the bump denial rules must not be engaged.\u00a0<\/p>\n\n\n\n

In these situations:<\/p>\n\n\n\n