Declaration of a private company dividend immediately before an s. 128.1(4)(b) emigration of the shareholder appears to be tax-neutral

Suppose that, shortly before the emigration of a resident individual holding shares of a private corporation (Xco), Xco declared a dividend in an amount equal to the FMV of Xco’s net assets but did not pay it until after the individual became non-resident. The unpaid dividend represented a right of the individual (likely, a capital property) that was owned at the time of ceasing to be resident, so that the tax on the capital gain from the disposition thereof pursuant to s. 128.1(4)(b), plus the Part XIII tax, equals the s. 128.1(4)(b) and Part XIII tax that would have been paid by the individual had the individual emigrated before the dividend declaration.

The position in 9640475 – that s. 128.1(4)(b) would apply to tax the individual on the emigration as if the declared and unpaid dividend had been paid - appears to be incorrect. As noted, the individual is only deemed to have disposed of the right to the dividend and not to have received it.

Neal Armstrong. Summary of David M. Sherman, Bal Katlai and Kenneth Keung, “Can an Unpaid Dividend Avoid Departure Tax?”, Tax for the Owner-Manager, Vol. 24, No. 1, January 2024, p. 9 under s. 128.1(4)(b).