Subsection 83(2) - Capital dividend
Cases
2529-1915 Québec Inc. v. Canada, 2009 DTC 5023 [at 5585], 2008 FCA 398
Overview of facts. The two individual taxpayers devised a scheme to: generate artificial capital gains of $110 million in some home-grown...
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| Tax Topics - General Concepts - Sham | capital dividend elections for distributions of what should have been known to be income-account gains were shams | 266 |
| Tax Topics - General Concepts - Tax Avoidance | capital dividend elections for distributions of what should have been known to be income-account gains were shams | 266 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business | shares premiums received for marketing tax scheme were business income | 213 |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Shares | shares acquired for immediate resale as part of capital dividend account generation scheme were on income account | 177 |
| Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business | shares premiums received for marketing tax scheme were business income | 223 |
Dale v. R., 97 DTC 5252, [1997] 2 CTC 286 (FCA)
At the time of a purported capital dividend on preference shares, the authorized capital of the corporation had not yet been amended to include...
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| Tax Topics - General Concepts - Effective Date | retroactive superior court order has retroactive effect for tax purposes | 174 |
| Tax Topics - General Concepts - Rectification & Rescission | retroactive effect of nunc pro tunc rectification order | 177 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Dividend | 78 | |
| Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) | retroactive validation by Superior Court of preference share issuance was effective for s. 85 purposes | 171 |
| Tax Topics - Statutory Interpretation - Provincial Law | 140 |
See Also
3295940 Canada Inc. v. The Queen, 2022 TCC 68, rev'd 2024 FCA 42
The taxpayer (3295940) was a holding company holding a shareholding in a Target with a low ACB (even after using safe income on hand to step up...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | circular use of capital dividends abused the purpose of the CDA | 966 |
| Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(d.2) | indirect use of high outside basis in the taxpayer’s shares as compared to basis in shares sold by it was contrary to the policy of prohibiting a bump of the inside basis | 195 |
Administrative Policy
7 October 2020 APFF Roundtable Q. 9, 2020-0852211C6 - Capital dividend
Immediately prior to closing a sale of a private corporation, its shareholder wishes to have all of the capital dividend account distributed to...
7 October 2020 APFF Roundtable Q. 7, 2020-0852191C6 F - Capital dividend and series of shares
The questioner, after noting that the payment of capital dividends only to taxable shareholders of a private company and not to its- tax-exempt...
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| Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1) | s. 83(2.1) “should be considered” where one of the main purposes of a reorganization is to stream capital dividends | 141 |
S3-F2-C1 - Capital Dividends
Full dividend
1.19 An election to pay a capital dividend should be filed on Form T2054 by the earlier of:
- the day on which the dividend becomes...
4 January 2012 External T.I. 2011-0414731E5 F - Interaction between 84.1 and 83(2) ITA
CRA does not plan to adopt an administrative position which would allow a private corporation to make a s. 83(2) election with respect to a...
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| Tax Topics - Income Tax Act - Section 84 - Subsection 84(7) | s. 84(7) might contradict CRA position that no s. 83(2) election on s. 84.1 dividend to non-shareholder | 105 |
30 May 2007 External T.I. 2006-0183851E5 F - Paragraphs 83(2) and 84.1(1)
Mr. X transfers high-low preferred shares of Opco 1 to Opco 2 (both held by him and related persons) in consideration for a note, such that he is...
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| Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1) - Paragraph 84.1(1)(b) | s. 84.1(1) dividend is payable per s. 84(7) so that s. 83(2) election available | 62 |
26 September 2002 External T.I. 2002-0128955 F - 84.1(1)(b) Deem Dividend 83(2) CDA
An individual disposed of all of the shares of a private corporation to a corporation wholly owned by his wife (OP2) in consideration for a note...
91 C.R. - Q.23
Where a corporation redeems shares owned by one shareholder, it may pay the balance of its capital dividend account to that one shareholder.
29 August 1991 T.I. (Tax Window, No. 8, p. 21, ¶1423)
No provision permits a late election.
25 June 1990 Memorandum (November 1990 Access Letter, ¶1523)
"There is no provision in sections 83 and 184 for amending an already filed election, for filing an amended election, for later substituting...
IT-66R6 "Capital Dividends"
Articles
Anthony Strawson, Timothy P. Kirby, "Vendor Planning for Private Corporations: Select Issues", 2017 Conference Report, (Canadian Tax Foundation), 11:1-28
Ability to use s. 84.1 deemed dividend as capital dividend (p. 11:22)
[l]n a 2002 technical interpretation, the CRA found that a purchaser...
Subsection 83(2.1) - Idem [Capital dividend]
Cases
Groupe Honco Inc. v. Canada, 2014 DTC 5006, 2013 FCA 128, aff'g 2013 DTC 1032 [at 149], 2012 TCC 305, infra
Trudel JA stated (at para. 24) that:
[C]ounsel for the appellants is ignoring the purpose and spirit of subsection 83(2.1) of the Act in...
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| Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) | sometimes elapsed time will be relevant to series determination | 194 |
See Also
Travel Document Service & Ladbroke Group International v Revenue & Customs (Rev 1), [2018] EWCA Civ 549
A British taxpayer (TDS) used a total return swap to cause its share investment in a subsidiary (LGI) to be deemed to be a loan. However, its...
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| Tax Topics - Statutory Interpretation - Interpretation/Definition Provisions | where an anti-avoidance provision’s application depended on the purpose of being a creditor, that purpose was the one for holding shares which were a deemed loan | 379 |
Groupe Honco Inc v. The Queen, 2013 DTC 1032 [at 149], 2012 TCC 305, aff'd 2013 FCA 128, supra
On January 13, 1999, a newly-incorporated corporation ("New Supervac") was leased the assets of an unrelated corporation ("Old Supervac"), coupled...
Barclays Mercantile Industrial Finance Ltd. v. Melluish, [1990] BTC 209 (Ch. D.)
The taxpayer ("BMI") acquired a film from a non-resident corporation ("WBI"), leased it to another corporation at a return that yielded 2.16% per...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | 136 | |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | 240 | |
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(17) | no "lease" where failure to provide exclusive possession | 75 |
Administrative Policy
7 October 2020 APFF Roundtable Q. 8, 2020-0852201C6 F - Acheminement du CDC / CDA Streaming
ACO (a CCPC) has three corporate shareholders, each holding 10 Class A common shares in its capital: BCO (exempt under s. 149(1)); CCO (a...
7 October 2020 APFF Roundtable Q. 7, 2020-0852191C6 F - Capital dividend and series of shares
CRA confirmed that since s. 248(6) requires a series of shares to be treated as a separate class, a capital dividend could be paid by a private...
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| Tax Topics - Income Tax Act - Section 83 - Subsection 83(2) | capital dividends can be paid on one series and not the other | 235 |
9 November 2017 External T.I. 2017-0704221E5 - Capital Dividend Account
Canco was the owner and beneficiary of a life insurance policy, with an adjusted cost basis of nil, on the life of its sole shareholder, Mr. X....
2016 Ruling 2015-0624611R3 - Capital Dividend Account
An estate sold a private company (Canco 1) to a third party purchaser, which promptly amalgamated with Canco 1. To the surprise of the estate, the...
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| Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (d) | proceeds of predecessor’s policy added to Amalco’s CDA when received | 182 |
S3-F2-C1 - Capital Dividends
Main reason test
1.95 ... Groupe Honco...confirmed that a person can have more than one main reason for the acquisition of shares. If subsection...
11 January 1994 External T.I. 9334235 F - CDA Anti Avoidance Rules
Where the shares of a corporation ("Opco") having a capital dividend account are transferred by a related individual to a newly-incorporated...
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| Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.4) | 72 |
29 June 2009 External T.I. 2008-0296371E5 F - Capital dividends
An estate owns all the shares of Corporation A, which has a capital dividend account (CDA) and refundable dividend tax on hand account (RDTOH) but...
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| Tax Topics - Income Tax Act - Section 129 - Subsection 129(1.2) | s. 87(2)(aa) would apply to eliminate RDTOH of predecessor given the absence of an s. 83(2.4) equivalent to exempt the predecessor’s notional dividend | 203 |
| Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(z.1) | s. 87(2)(z.1) would apply to eliminate CDA of predecessor if the s. 83(2.4) exceptions did not prevent the application of s. 83(2.1) to the notional dividend paid by that predecessor | 266 |
IT-66R6 "Capital Dividends"
Articles
Michael McGowan, "HMRC v Lloyds Bank Leasing (No 1) Ltd: the troublesome increase in the scope of the "sole or main object" test", [2015] British Tax Review, No.5 2015 (Thomson Reuters (Professional) UK Limited), p. 649
Following the Lloyd Bank decisions ([2014] EWCA Civ 1062, remitted to [2015] UKFTT 401) dealing with an anti-avoidance provision which was engaged...
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| Tax Topics - General Concepts - Purpose/Intention | 644 |
Nathan Boidman, Canadian Tax Highlights, Vol. 22, No. 5, May 2014, p. 9.
Prevalence of "one of the main purposes" test (p. 9)
The phrase "one of the main purposes" (or "one of the main reasons," "one of the main...
Subsection 83(2.2)
Administrative Policy
S3-F2-C1 - Capital Dividends
Overview
1.97 ...Subsection 83(2.2) provides that the anti-avoidance rule will not apply to a capital dividend paid to an individual if,...
Subsection 83(2.3)
Administrative Policy
S3-F2-C1 - Capital Dividends
Overview
1.97 ...Subsection 83(2.3) provides that the anti-avoidance rule will not apply to capital dividends paid by a corporation where it is...
Subsection 83(2.4) - Idem [Where s. (2.1) does not apply]
Administrative Policy
S3-F2-C1 - Capital Dividends
Overview
1.97 ... Subsection 83(2.4) provides that the anti-avoidance rule will not apply to a capital dividend paid to a related corporation...
11 January 1994 External T.I. 9334235 F - CDA Anti Avoidance Rules
Where an individual transfers shares in a related corporation having a capital dividend account to a newly-incorporated holding corporation in...
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| Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1) | 58 |
Subsection 83(3)
Administrative Policy
11 October 2019 APFF Roundtable Q. 13, 2019-0812721C6 F - Late-Filed CDA Election
Must the advance authorization (described in s. 83(3)(c)) by the directors be made before the declaration of the dividend or merely before the...
30 August 2017 External T.I. 2017-0718311E5 F - Capital dividend account
On January 1, Corporation A paid a capital dividend of $40,000 to its sole shareholder, Corporation B, but did not make a late capital dividend...
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| Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (b) | late capital dividend election retroactively affects CDA of dividend recipient | 41 |
S3-F2-C1 - Capital Dividends
90-day limit
1.23 The late filing provisions described in ¶1.21 cease to be available for a particular dividend if a taxpayer does not comply...
Subsection 83(3.1)
Administrative Policy
2 May 2005 Internal T.I. 2005-0119971I7 F - CDA - Excessive Election & Late Filed Election
CRA never received a s. 83(2) election in respect of a dividend payable in 1997 by Yco to its sole shareholder, an individual ("Y"). The normal...
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| Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) | where the corporation failed to file s. 83(2) election, CRA should assess Pt. III tax first, then assess any s. 184(3) taxable dividends, without normal reassessment period limitation | 106 |