Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
September 28, 1999
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Martin Cauchon, Minister of National Revenue, has asked me to reply to your letter of July 8, 1999, addressed to his predecessor, the Honourable Herb Dhaliwal, concerning your receipt of a taxable dividend on the sale of your shares of XXXXXXXXXX. This is also further to my letter of June 18, 1999.
Under the Income Tax Act, when a corporation purchases its own shares from a shareholder, a dividend is considered to have been paid to the shareholder to the extent the purchase price of the shares exceeds what is referred to as the "paid-up capital" of the shares. The paid-up capital of a company represents the monetary contribution to a corporation by its shareholders. To the extent that an amount in excess of the paid-up capital is returned to a shareholder, it represents a distribution of the corporation's earnings and is therefore subject to tax. Because paid-up capital represents an average of different shareholders' contributions to a corporation, the paid-up capital of a share is not always equal to its cost. This can result in a situation, as in your case, where a shareholder who receives an amount from the company for his shares, which is less than the amount paid for the shares, can still be subject to tax.
In your letter, you request an explanation as to why such a rule exists in the Act. Revenue Canada is responsible for the administration of tax legislation, while the Department of Finance is responsible for tax policy. Accordingly, I have forwarded a copy of your letter and our previous correspondence on this matter to Mr. Munir Sheikh, Assistant Deputy Minister, Tax Policy Branch of that department, so that he may be made aware of your concerns.
I trust my comments have explained the Department's position on this matter.
Yours sincerely,
Bill McCloskey
Assistant Deputy Minister
Policy and Legislation Branch
Dave Palamar
1999-03358
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999