Joint Committee comments on the draft refundable-tax suspension rules

Draft s.129(1.3) (contained in January 29, 2026 draft legislation) proposes that, subject to the exclusions in ss. 129(1.31) and (1.32), where a taxable dividend is paid by a corporation (the “payer”) to an affiliated private or subject corporation (the “payee”) that has a balance-due day after that of the payer, the dividend is deemed not to be a taxable dividend for the purposes of s. 129(1) (no dividend refund). Comments of the Joint Committee on these rules include:

• The requirement in s. 129(1.32) that the payee corporation (and grandparent corporations, if applicable) pay one or more taxable dividends of the same character as the suspended dividend, in an aggregate amount at least equal to the amount of the suspended dividend, means that RDTOH balances of the payer can become effectively trapped where the payer lacks sufficient assets to pay the required dividends to unsuspend the dividend.
• As s. 129(1.3) suspends an entire dividend of the payer, even where only a portion of that dividend gives rise to a dividend refund, the requirement that a dividend of the payee corporation exceed the amount of the suspended dividend, rather than only the portion necessary for the refund, increases the risk that dividend refunds may effectively be lost.
• Regarding the requirement (for unsuspending the payer’s dividend) that the dividend paid by the payee corporation (or grandparent corporations, if applicable) must be of the same character, this may not be feasible.
• In particular, it is not always possible for the payee to pay an eligible dividend even where it has received an eligible dividend from the payer, for example, because of a negative GRIP balance.
• Alternatively, if it is not a CCPC, it may have a low LRIP balance that must be fully depleted before it can designate any dividend as an eligible dividend.
• S. 129(1.32) does not unsuspend a dividend where the payor corporation is subject to a loss restriction event (LRE) between the time of the suspended dividend payment and the end of the particular taxation year for which the rule is being applied.
• The exception to the above LRE rule in s. 129(1.31)(b) applies where an LRE occurs within 30 days after the payment of the dividend.
• In some circumstances, a 30-day window may be insufficient - for example, where the corporation being sold is owned by a trust, s. 104(19) deems the trust’s corporate beneficiaries to receive a dividend only at the trust’s taxation year-end, so that a pre-closing purification dividend may need to be paid in the taxation year preceding the sale in order to ensure that the relevant connected status requirements are satisfied.
• Note that s. 256(9) may result in the acquisition of control occurring at the end of the day before the closing date, so that the LRE is deemed to occur before the payment of the dividends to the vendors on the closing date.
• The s. 129(1.32)(b) rule, which is understood to be intended to prevent the same taxable dividends from being used to recover RDTOH in more than one instance, would appropriately be avoided in some situations if the dividend payor could choose to not to recover its own RDTOH in order to avoid tainting the release of a suspended dividend under s. 129(1.32), until it can pay a dividend in excess of the suspended dividend amount.
• However, 2016-0649841E5 indicates that CRA automatically issues a dividend refund where sufficient taxable dividends are paid, even where the dividend payor does not expressly request the refund.

Neal Armstrong. Summary of Joint Committee, “Submission on Tax Deferral Through Tiered Corporate Structures (Part IV refund suspension),” 27 February 2026 Joint Committee submission under s. 129(3.2).