CRA finds that an accrued dividend refund, as a contra to accrued gains taxes, increased the safe income from a sale
A corporation, with a December 31 year-end, sold all of its assets on November 30 (thereby resulting in a capital gain and refundable dividend tax on hand ("RDTOH")) and, the next day, made a dividend payment of its net asset value. It was suggested (based on 9429465) that CRA would consider the resulting dividend refund (“DR”) to not be includible in safe income until the end of the year (December 31), so that the dividend resulted in a partial capital gain on December 1, equaling the unrealized safe income related to the DR.
To the contrary, CRA stated:
In the context of a situation as described in the question and to the extent that it is reasonable to consider that the DR contributes to the hypothetical capital gain in respect of the shares on which the dividend was received (assuming a disposition at FMV of the shares immediately prior to the dividend), the CRA would be willing to take the position that the DR receivable is to be considered in computing income earned or realized as of December 1.
Consequently, it was only the net taxes payable that reduced the safe income on hand.