Hubro Holdings LTD v. Minister of National Revenue, [1976] CTC 2078, 76 DTC 1068

A W Prociuk:—This appeal came on for hearing at the sittings of the Tax Review Board in Vancouver, commencing on June 2, 1975. The appellant, by letter dated May 28, 1975, addressed to the Board, advised that in view of the amount involved it was not practical for its representative to appear before the Board and requested that Its written submission be. considered in support of its appeal. Learned counsel for the respondent agreed to this arrangement and undertook to file a written submission on behalf of the respondent, which he did.

The appeal is from the respondent’s assessment for the taxation year 1972 being an assessment in respect of tax on excess of dividend paid over the portion payable out of tax-paid undistributed surplus or 1971 capital surplus.

I have perused the entire file including the correspondence between the appeilant and the respondent’s district office and I find that the written submission by learned counsel for the respondent in respect of this appeal, properly sets out the circumstances herein, which are as follows:

1. On 31st July, 1972, the Appellant elected by virtue of Section 196(1) of the Income Tax Act, to pay a 15% tax of $309.62 on $2,064.15, which it considered was its undistributed Income on hand at the end of Its 1971 fiscal period.

2. On 14th November, 1972, the Appellant, by virtue of Section 83(1) elected to pay out of tax-paid undistributed income on hand at the end of its 1971 fiscal period, a dividend of $1,754.53, being its $2,064.15 undistributed Income on hand mentioned in paragraph 1 hereof, less 15% tax amounting to $309.62.

3. On 13th June, 1973, the Respondent assessed the Appellant, by virtue of Section 184(1), on the ground the company had overstated at $2,064.15 the amount of its undistributed income on hand as a result of having failed to deduct in its computation incorporation costs of $67.00 and that Its undistributed income on hand at the end of 1971 amounted to $1,997.15.

4, The tax assessed on 13th June, 1973, in the sum of $56.95 was computed in the understated manner:

Appellant’s Computation		Minister’s Computation
Appellant’s Undistributed
Income On Hand	$2,064.15	$2,064.15
Incorporation Expenses			67.00
		1,997.15
15% Tax	309.62		299.57
Tax Paid Surplus	1,754.53	1,697.58
Dividend Paid		1,754.53
Amount By Which Dividend Exceeds		$	56.95
Tax Paid Undistributed Surplus

The sum of $56.95 is $67.00 incorporation expenses less $10.05 being 15% thereof already paid as tax as a result of the overstatement.

Section 184(1) provides for a tax equal to the amount by which the full amount of a dividend payable exceeds the aggregate of the portion thereof deemed by Section 83(1), payable out of its tax paid undistributed surplus on hand and the portion thereof so deemed to be payable out of Its capital surplus on hand, however, while a portion of the dividend paid in this case was payable out of capital surplus, the tax in dispute relates only to the portion of the dividend payable from tax paid undistributed surplus.

5. incorporation expenses are deductible In computing undistributed Income on hand at the conclusion of 1971, by virtue of Section 196(4) of the Act and Section 82(1)(a)(ii) of the 1952 Income Tax Act, to which reference Is made In Section 196(4). (See Harold Terry, 74 DTC 6017 at 6019 [1973] CTC 837 at 839]).

6. The assessment under Section 184(1) of 100% of the difference between the dividend paid according to the Appellant’s computations and the tax- paid undistributed income on hand according to the Respondent’s computations, is in accordance with the legislation the magnitude of the tax being consistent with Section 83(1)(c) whereby no part of a dividend paid under Section 83(1) Is included In computing the Income of a shareholder.

7. The Appellant cannot be offered the relief provided for administratively by Revenue Department Circular 74-17R since in particular the shareholders of record changed after the date of record of the dividend. (See paragraph 2(1) under the heading Annulment of Subsections 83(1) and 83(2), Elections.)

The appeal, accordingly, is dismissed.

Appeal dismissed.