subsidiary and can deduct the resource 
deductions. If any Canadian resource 
properties or foreign resource properties 
are transferred to minority shareholders, 
those properties are considered to have 
been disposed of by the subsidiary and 
acquired by the shareholders at their 
fair market value. Such a disposition 
will result in a reduction of the relevant 
accounts of the subsidiary and an 
increase in the relevant accounts of the 
minority shareholders. (See 

Deductions, 

Allowances, and Credits – Successor 
Corporation Rules

.) 

Other Wind-Ups

If the tax-deferral rules do not apply 
to the wind-up of a corporation, the 
wound-up corporation is deemed to 
have distributed all of its resource 
properties at their fair market value. 
As a result, there will be a reduction in 
the resource-related accounts of the 
corporation, and the corporation may 
realize income. There will also be a 
corresponding increase in the resource-
related accounts of the shareholders 
of the corporation. If it is possible for 
the wound-up corporation to transfer 
all or substantially all of its Canadian 
or foreign resource properties to one 
corporation, that person could be a 
successor corporation to the wound-up 
corporation. The successor corporation 
rules may apply on a wind-up. (See 

Deductions, Allowances, and Credits – 
Successor Corporation Rules

.)

Election to Bump Cost of 
Acquired Property

Where a parent winds up a subsidiary 
corporation under the tax-deferral rules 
or a parent corporation amalgamates 
with one or more subsidiary wholly 

owned corporations, the parent or 
the amalgamated corporation may 
elect to step up or “bump” the cost 
of non-depreciable capital property of 
the subsidiary. Property that is eligible 
for the bump includes land, shares of 
subsidiary corporations, and partnership 
interests.

The cost of the bumped property 
cannot be increased to more than the 
fair market value of the property at the 
time the parent last acquired control 
of the subsidiary. The total amount by 
which the cost of all the properties 
can be increased (the “bump room”) 
is the amount by which the cost of the 
shares of the subsidiary to the parent 
exceeds the net cost of all the assets 
to the subsidiary. The bump room may 
be restricted for the following types of 
property of the subsidiary:

• A partnership interest, to the extent 

that the fair market value of that 
interest is attributable to depreciable 
property imbued with an inherent 
capital gain, Canadian resource 
property or foreign resource property, 
or inventory and eligible capital 
property imbued with an inherent 
capital gain: This rule strives to deny 
the bump of a partnership interest to 
the extent that the property of the 
partnership would not be eligible for 
the bump.

• Shares of a foreign affiliate, to the 

extent that the affiliate has a “tax-
free surplus balance”: This rule 
strives to deny the bump of shares 
of a foreign affiliate to the extent that 
the bump would otherwise result 
in duplication of tax attributes. (See 

Structuring Mining Investments – 
Non-Resident Investors – Acquiring 
Assets Versus Acquiring Shares

.) 

The bump is quite important, and is 
most often used, where a corporation 
acquires control of another corporation 
and wishes to sell or transfer property 
of the acquired corporation. (See 

Structuring Mining Investments – 
Non-Resident Investors – Operating 
in Canada Through a Subsidiary

.)

Acquisition of Control

The ITA contains rules that apply to 
a corporation where a person, or a 
group of persons, acquires control 
of the corporation. Acquisition of 
control includes de jure control in all 
circumstances and de facto control 
in some limited circumstances. 

These acquisition-of-control rules 
are designed to restrict loss trading 
between arm’s-length parties. The 
acquisition-of-control rules include:

• an automatic end to the taxation 

year of the acquired corporation 
immediately before the acquisition  
of control (the deemed year-end rule);

• a limitation on the utilization of 

non-capital losses;

• elimination of capital losses; 
• a limitation on the deduction of UCC 

and cumulative eligible capital 
(CEC) balances;

• a limitation on the deduction of 

ITCs; and 

• a limitation on deductions in respect 

of CCEE, CCDE, CCOGPE, and 
ACFRE accounts.

The deemed year-end rule was designed 
to make it more difficult for taxpayers to 
traffic in losses. However, it is a rule of 
general application and has widespread 
implications. 

© 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.

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 A Guide to Canadian Mining Taxation