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.
Principal Issues: Whether a bonus paid to the principal shareholder of a holding company from the proceeds of disposition of shares in an operating company would be considered a reasonable expense of the holding company under the CRA's policy on the reasonableness of shareholder/manager remuneration?
Position: The policy does not apply. The reasonableness of the amount will be a question of fact.
Reasons: The administrative policy does not apply to the deductibility of remuneration paid by a holding company or paid out of the proceeds from the sale of shares.
Randy Hewlett
XXXXXXXXXX 613-957-2049
2006-017205
May 19, 2006
Dear XXXXXXXXXX:
Re: Reasonableness of Shareholder/Manager Remuneration
We are writing in response to your letter of February 15, 2006, wherein you asked for our opinion on the above-noted subject.
Specifically, you asked whether a bonus paid to the principal shareholder of a holding company from the proceeds of disposition of shares in an operating company, would be considered a reasonable expense of the holding company under the CRA's policy on the reasonableness of shareholder/manager remuneration, which is discussed in Income Tax Technical News Nos. 22 and 30.
The CRA's administrative policy does not apply to the deductibility of remuneration paid by a holding company. Further, it does not apply to the deductibility of remuneration paid out of the proceeds from the sale of shares. In these situations the CRA would reserve the right to challenge the reasonableness of the payments under section 67 of the Income Tax Act
We trust our comments will be of assistance to you.
Yours truly,
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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