CRA addresses further questions on the intractable CEWS dividend-payment rules

CRA confirmed that there is a full denial under s. 125.7(2.01) of the CEWS (wage subsidy) amount where a publicly traded company pays any taxable dividend in a qualifying period to an individual who is a “holder” of its common shares. CRA also indicated that para. (b) of A in the s. 125.7(14.1) formula for computing the amount of the subsidy that must be repaid requires the eligible entity to determine (in addition to determining its “executive compensation repayment amount”) the dividend amounts paid to holders of common shares who are individuals.

Given that most public companies could not enumerate who are the beneficial owners of their shares, this might suggest that “holders” are registered holders. CRA did not discuss this point (nor did Finance, who did not draft this mess) – but thanks to Ian Caines for pointing out that this point among others was discussed in Committee, where MP Sophie Chatel complained:

Who is a holder? I don't know. … This is not serious drafting. I see five problems with this particular definition. … Despite what my colleagues want to achieve, it's not rigorous and it is not the way people do drafting in this country [as to which the rejoinder was that “CRA … will have a significant amount of time to clarify any ambiguity or vagueness.”]

Which brings us to the next query in the same technical interpretation, namely, in what situations does s. 125.7(14.1) apply, given that s. 125.7(2.01) seems to apply in the same circumstances?

CRA indicated that ss. 125.7(2.01) and (14.1) both apply where a publicly traded company pays certain dividends, and that the legislation does not prevent the two subsections from incorporating the same dividends in their respective operations. It did not indicate whether this meant that there could in actual practice be a punitive double application by CRA of the two provisions.

Neal Armstrong. Summaries of 25 July 2022 External T.I. 2021-0922321E5 under s. 125.7(2.01) and s. 125.7(14.1).