27 September 2001 External T.I. 2001-0094305 - amount of stock dividend

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Amount of stock dividend where "high/low" preferred shares are issued in payment of the dividend

Position: Provided the applicable corporate law allows the declared amount of the dividend, and the addition to stated capital, to be a nominal amount where shares with a higher fair market value are issued in payment of the stock dividend, the amount of the stock dividend will be equal to that nominal amount

Reasons: Paragraph (c) of the definition of "amount"

XXXXXXXXXX 							2001-009430
								Gwen Watson
September 27, 2001

Dear XXXXXXXXXX:

Re: Stock Dividends

We are writing in reply to your letter of July 17, 2001 wherein you requested a technical interpretation on the amount of a stock dividend for the purposes of the Income Tax Act (Canada) (the "Act") in respect of the following hypothetical scenario:

- a corporation incorporated under the Business Corporations Act (Alberta) ("AlbertaCo") declares a stock dividend in the amount of $1

- the shares issued by AlbertaCo as the stock dividend are redeemable for $1,000, and

- pursuant to subsection 41(2) of the Business Corporations Act (Alberta), AlbertaCo adds $1 to the stated capital account maintained for the shares issued as the stock dividend.

Our Comments

For the purposes of the Act, the "amount" of a stock dividend is defined in subsection 248(1). On the assumption that neither of paragraphs (a) or (b) of the definition of "amount" is applicable in the circumstances, the "amount" of the stock dividend for the purposes of the Act in the hypothetical scenario will be the amount by which the paid-up capital of the corporation which paid the dividend is increased by reason of the payment of the dividend.

Subsection 41(2) of the Business Corporations Act (Alberta) provides that if shares of the corporation are issued in payment of the dividend, the declared amount of the dividend, stated as an amount of money, is to be added to the stated capital account of the shares issued in payment of the dividend. Accordingly, if the Business Corporations Act (Alberta) allows AlbertaCo to declare a dividend of $1 in the hypothetical scenario, which is then added to the stated capital account as outlined above, the amount of the stock dividend, as defined in subsection 248(1) of the Act, would be $1.

We note that subsection 15(1.1) of the Act may apply in certain circumstances to require a shareholder who receives a stock dividend to include amounts, in addition to the amount of the stock dividend, in income.

We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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