Kufsky – Tax Court of Canada finds that a dividend that had not been declared nonetheless was a dividend for tax purposes

In finding that a corporation should be treated as having paid dividends to its shareholder, so that CRA validly assessed the shareholder under s. 160 for a tax debt of the corporation, even though no dividend had been declared, and the only evidence of the payment of a dividend was the cash movements and the corporation’s subsequently-fired accountant issuing T5 slips to the taxpayer, MacPhee J stated:

[A] reported dividend, even if not in compliance with the provincial statute, remains valid for tax purposes … .

The only authority cited for this statement was 2753-1359 Québec dealing with a payment that apparently was not argued to be something other than a dividend; and this statement also might seem at odds with the well-accepted view (codified in s. 8.1 of the Interpretation Act) that tax law attaches consequences to the transactions that occurred as a matter of provincial (or corporate) law. However, the proposition - that a payment can be a dividend under the corporate law even if none of the usual formalities are observed - very well may be correct. See e.g., Cangro Resources (“dividend” was to be given its “accepted ordinary meaning” – that is, of a pro rata distribution to all shareholders, other than a formal reduction of paid-up capital or liquidating distribution.”)

The Kufsky proposition that a dividend declaration is unnecessary also suggests that there may be no need to rectify a badly-drafted dividend resolution.

Neal Armstrong. Summary of Kufsky v. The Queen, 2019 TCC 254 under s. 160(1).