CRA accommodates notional elections on notional s. 90(9) dividends, and application of rule against double taxation to multiple s. 90(6) inclusions

Various elections potentially are available to Canco when it receives a dividend from its foreign affiliate (FA1). But what if it is receiving a notional dividend from FA1 as a result of the receipt of an upstream loan from FA1 (or perhaps from FA1’s subsidiary - FA2)? Can it then pretend that it has made notional elections?

CRA accepts that Canco can treat the disproportionate underlying foreign tax election under Reg. 5907(1), the Reg. 5901(2)(b) election to convert a dividend into a "pre-acq" dividend or the Reg. 5901(1.1) election to access taxable surplus and related UFT, as if they had applied to the notional dividend. However, the 90-day rule cannot be used (see also 2014-0526721C6) – nor can Canco access notional surplus that would have arisen to FA1 as a result of a s. 40(3) (negative ACB) gain which would have arisen to FA1 if the notional dividend in question had instead been paid as an actual dividend by FA2 to FA1 before being on-paid by FA1 to Canco (see also Buttenham).

CRA also accommodates avoidance of double taxation, e.g., where FA2 has been wound up into FA1 following having made a loan to Canco, thereby technically giving rise to a 2^nd s. 90(6) inclusion (see also 2013-0499121E5), or there have been a series of upstream loans and repayments, thereby technically giving rise to multiple income inclusions to Canco given the denial of a s. 90(14) deduction to Canco for repayments as part of a series (see also 2013-0506551E5).

Within limits, CRA can be accommodating.

Neal Armstrong. Summary of 30 October 2014 T.I. 2013-0488881E5 under s. 90(9).