Additional significance of having dividends paid in 2017 rather than 2018 (p. 1)
ln Canada, 2017 was the last year that dividends could be "sprinkled" freely to adult family members without concern for the Tax on Split Income.
The United States implemented broad-ranging tax reform, which included a "Transitional Tax" on most accumulated Earnings and Profits — essentially tax-based retained earnings — of many foreign corporations. [fn 2: US Internal Revenue Code ("IRC") §
965] …
Canadian personal taxes and non-resident withholding tax are partially creditable against this Transitional Tax. [fn 3: IRC § 901, 965(g)] Americans who wish to generate Canadian tax to offset the Transitional Tax will need dividends paid in 2017.
965] …CRA distinction between evidencing and recharacterizing a transaction (p. 3)
[T]he CRA recognizes that a transaction may be "papered" after the fact, but backdating is improper where it is tantamount to a retroactive characterization or alteration of reality. The courts take the same view: "although not ideal, a share certificate may be prepared and signed after the investment and its acceptance, with no effect on the quality or value of the title represented by the share certificate" [fn 10: Beaulieu…2011 DTC 1160…] However, another court stated "I find unacceptable the notion that a company and its shareholder are entitled, for purposes affecting the rights of third parties, to rewrite history, that is to say, to treat imaginary events as having happened. A legislature has the power to enact deeming provisions. Others do not." [fn 11: … Wood …88 DTC 1180…]
Need to codify CRA practice on finalizing salary/dividend mix (p. 3)
We would recommend an express CRA policy permitting the crystallization of compensation and dividends in an owner-managed business to occur, for example, up to 60 days after fiscal year end (to match the due date for T5 slip filing). This administrative concession would codify the CRA's existing practice.
Efficacy of formulaic resolution
[I]s it feasible to draft resolutions before year-end without full knowledge of the financial situation? A formulaic approach may be legally effective. For instance: of the amounts disbursed, some proportion is a shareholder loan repayment, some proportion is salary or bonus, and the balance is a dividend (the amount of which is to be established following the calculation of shareholder loan balances and salary/bonus).
CRA distinction between evidencing and recharacterizing a transaction (p. 3)
[T]he CRA recognizes that a transaction may be "papered" after the fact, but backdating is improper where it is tantamount to a retroactive characterization or alteration of reality. The courts take the same view: "although not ideal, a share certificate may be prepared and signed after the investment and its acceptance, with no effect on the quality or value of the title represented by the share certificate" [fn 10: Beaulieu…2011 DTC 1160…] However, another court stated "I find unacceptable the notion that a company and its shareholder are entitled, for purposes affecting the rights of third parties, to rewrite history, that is to say, to treat imaginary events as having happened. A legislature has the power to enact deeming provisions. Others do not." [fn 11: … Wood …88 DTC 1180…]
Need to codify CRA practice on finalizing salary/dividend mix (p. 3)
We would recommend an express CRA policy permitting the crystallization of compensation and dividends in an owner-managed business to occur, for example, up to 60 days after fiscal year end (to match the due date for T5 slip filing). This administrative concession would codify the CRA's existing practice.
Efficacy of formulaic resolution
[I]s it feasible to draft resolutions before year-end without full knowledge of the financial situation? A formulaic approach may be legally effective. For instance: of the amounts disbursed, some proportion is a shareholder loan repayment, some proportion is salary or bonus, and the balance is a dividend (the amount of which is to be established following the calculation of shareholder loan balances and salary/bonus).
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