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March 20, 2023

Tax Perspectives

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Please note that these publications may not be up-to-date as taxation matters are subject to frequent changes.

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Supplement 2003

On February 18, 2003, the Minister of Finance released a number of proposed tax changes. We summarize the more significant ones in this commentary.

Share-for-Share Exchanges

If a Canadian resident owns shares of a Canadian corporation and exchanges these for shares of an other Canadian corporation (say in a takeover bid), this can be done on a tax-free basis. Ironically, shares of a foreign corporation may be exchanged for shares of another foreign corporation (or of a Canadian corporation) tax-free as well. In both cases, tax is paid when the shares are ultimately sold (e.g., sold in the market for cash). However, shares of a Canadian corporation cannot be exchanged for shares of a foreign corporation without immediate tax. This has made it difficult for Canadian corporations to enter world markets through share for share exchange transactions, especially where the shares are closely held by Canadian residents.

The government is proposing to look at rules to allow a Canadian/foreign share-for-share exchange on a tax deferred basis in specific situations as long as it still protects Canada's tax base. Look for draft legislation in the near future.