CRA doesn’t like Gwartz

CRA considered an arrangement, in which two personal holding companies of an Opco annually receive share redemption proceeds from the Opco which by design are deemed to be capital gains by s. 55(2), and with the non-taxable half of the capital gains being paid by the Holdcos to the individual shareholders as capital dividends, to be surplus stripping to which the general anti-avoidance rule could apply.  After referring to Gwartz, CRA indicated that it intends to demonstrate to the Tax Court "that there is a specific scheme under the Act for taxing the distribution of surplus of a Canadian corporation as a taxable dividend in the hands of individual shareholders."

Neal Armstrong.  Summary of 18 June 2013 T.I. 2012-0433261E5 F under s. 84(2).