In other circumstances, the rules 
provide planning opportunities or greater 
flexibility in restructuring resource 
property holdings within a corporate 
group. In the case of corporate 
reorganizations involving resource 
properties held at the partnership 
level, the ITA provides that resource 
tax accounts are to be computed at 
the partner level, with the result that 
resource expenditures incurred by a 
partnership are automatically flowed out 
to partners at the end of the fiscal period 
of the partnership. This is different than 
the treatment of UCC balances, which 
are computed at the partnership level. 

Tax-Deferred Transfers

Where a taxpayer transfers an eligible 
property to a taxable Canadian 
corporation for consideration that 
includes shares of the corporation, the 
transferor and the corporation may jointly 
elect under the ITA an amount (“the 
elected amount”) that is then deemed to 
be the transferor’s proceeds of disposition 
and the corporation’s cost of the property. 
Similar rules apply to the transfer of an 
eligible property by a partnership to a 
corporation. For the purpose of these 
provisions, an eligible property includes 
a Canadian resource property and a 
foreign resource property. 

Elected Amount

The elected amount cannot:

• exceed the fair market value of the 

property transferred

or

• be less than the fair market value of 

the non-share consideration received 
by the transferor on the transfer.

The elected amount also cannot be less 
than the lesser of the tax cost of the 
transferred property and the fair market 
value of the property. 

Usually the transferor and the transferee 
will elect an amount that will not result 
in an income inclusion for the transferor. 
For example, where the property 
transferred is a non-depreciable capital 
property, the elected amount will 
usually be the adjusted cost base of 
the property. A resource property has 
no cost associated with it since its cost 
is added to the relevant account of the 
transferor. As a result, the parties may 
elect nominal proceeds.

In a straightforward situation in which the 
transferor has incurred only CEE and CDE 
(discussed in 

Deductions, Allowances, 

and Credits

), the elected amount in 

connection with a transfer of a Canadian 
mining property will be an amount not 
exceeding the aggregate of the CCDE 
and CCEE accounts of the transferor. 
(In the case of an oil sands property, it 
will be an amount not exceeding the 
aggregate of the CCEE, CCDE, and 
CCOGPE accounts of the transferor.) 
Similar considerations will apply to the 
transfer of foreign resource properties. 

Amalgamations

Federal and provincial corporate statutes 
provide rules that apply where two 
or more corporations amalgamate 
and become one corporation. Under 
such legislation, the amalgamating 
corporations are treated like tributaries 
that flow together to form a single 
river; there is no concept of a surviving 
corporation. The amalgamation will 
be a tax-deferred event for both the 
corporations and their shareholders 
provided that:

• all of the property of the 

amalgamating corporations becomes 
property of the new corporation;

• all of the liabilities of the amalgamating 

corporations become liabilities of the 
new corporation; and

• all of the shareholders of the 

amalgamating corporations receive 
shares of the new corporation.

The successor corporation rules 
may apply on an amalgamation. 
(See 

Deductions, Allowances, and 

Credits – Successor Corporation Rules

.)

Wind-Ups of Subsidiaries

Tax-Deferred Wind-Ups

A tax-deferred wind-up of a Canadian 
subsidiary corporation into its parent is 
permitted under the ITA where:

• the parent is a taxable Canadian 

corporation and owns at least 
90% of each class of shares of the 
subsidiary corporation;

• the subsidiary is a taxable Canadian 

corporation; and

• all of the shares of the subsidiary 

that are not owned by the parent 
immediately before the wind-up are 
owned at that time by persons with 
whom the parent was dealing at 
arm’s length. 

In practice, the parent typically owns 
100% of the shares of the subsidiary. 

Where the tax-deferral rules apply, 
the subsidiary is considered to have 
disposed of, for nil proceeds, and the 
parent is deemed to have acquired, for 
nil cost, each Canadian resource property 
and each foreign resource property 
distributed by the subsidiary to the 
parent on the winding-up. As a result, 
where all of the resource properties 
of the subsidiary are transferred to 
the parent, there is no reduction in 
the resource-related accounts of the 
subsidiary and no addition to the 
resource-related accounts of the parent. 
However, for the purposes of computing 
resource deductions, the parent is 
deemed to be a continuation of the 

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms 
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

 

Structuring Mining Investments 

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