CRA reaffirms the requirement for a circular calculation of Pt IV tax and RDTOH

In the context of a group of corporations undertaking a reorganization involving share redemptions between multiple corporations, with one or more of the corporations having an existing RDTOH balance, CRA confirmed that a circular RDTOH, dividend refund and Part IV tax calculation was required, with the result that “the Part IV tax and of the dividend refund of each connected corporation increase proportionally with each calculation.” CRA went on to indicate that this was not especially harsh:

[E]ven though computing a corporation’s Part IV tax and dividend refund by successive circular calculations inflate these amounts and … these calculations are tedious, they are not financially injurious to the connected corporations as the net amount of Part IV tax payable by one corporation (Part IV tax payable minus its dividend refund) will equal the net amount of the dividend refund (dividend refund minus Part IV tax payable) of the other.

Neal Armstrong. Summary of 11 October 2018 External T.I. 2018-0771831E5 under s. 186(1)(b).