CRA indicates that s. 55(5)(e)(i) now permits a s. 55(3)(a) split-up between siblings where either the dividend recipient or payer is a QSBC
S. 55(5)(e)(i) deems siblings to deal with each other at arm’s length for s. 55 purposes. Bill C-208 (a Private Member’s bill) amended s. 55(5)(e)(i) to add an exception from this rule effectively “where the dividend was received or paid” as part of a series by a corporation whose shares were qualified small business corporation shares or family farm or fishing corporation shares. Regarding the meaning of the “or” italicized above, CRA stated:
A strict reading of subparagraph 55(5)(e)(i) indicates that either the dividend payer or the dividend recipient has to be a corporation (herein referred to as “such corporation”) the shares of which are qualified small business corporation shares or shares of the capital stock of a family farm or fishing corporation, and not both … .
It is difficult to deduce the rationale that requires only one of the dividend payer or dividend recipient to be such corporation. However a textual, contextual and purposive interpretation of subparagraph 55(5)(e)(i) does not allow us to override its wording … .
[P]aragraph 55(3)(a) is restricted in its application to subsection 84(3) dividends in order to facilitate bona fide internal reorganizations and is not intended to provide taxpayers with a tool to create or multiply ACB.
Neal Armstrong. Summary of 23 March 2022 External T.I. 2021-0921261E5 under s. 55(5)(e)(i).