25 July 2003 External T.I. 2002-0156545 - 89(1) - Capital Dividend Account

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 CCRA.

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

Principal Issues:

In computing the capital dividend account of a corporation, whether paragraph (b) of the definition of "capital dividend account" in subsection 89(1) includes all amounts of subsection 83(2) capital dividends that the corporation received while it was a public corporation or while it was not a private corporation?

Position:

No.

Reasons:

Paragraph (b) of the definition of "capital dividend account" allows only those amounts of subsection 83(2) capital dividends that the corporation received after it last became a private corporation.

XXXXXXXXXX
2002-015654
Daniel Wong
(613) 954-4949
July 25, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Definition of "capital dividend account" in subsection 89(1) of the Income Tax Act ("Act")

This is in reply to your letter of August 8, 2002 wherein you requested our opinion as to whether a private corporation (as defined in subsection 89(1) of the Act) can include in its capital dividend account ("CDA") an amount in respect of a subsection 83(2) capital dividend that the private corporation received while it was a public corporation (as defined in subsection 89(1)) or while it was not a private corporation (i.e. a corporation that is controlled by a public corporation).

In your view, this amount should be included in the private corporation's CDA by virtue of paragraph (b) of the definition of "capital dividend account" in subsection 89(1).

Our Comments

In your letter, you have outlined what appears to be an actual fact situation related to transactions and events that have taken place. The review of such situations is generally the responsibility of the local taxation services offices and, as outlined in paragraph 22 of Information Circular 70-6R5, it is not our practice to provide specific opinions on factual situations otherwise than in the context of an advance income tax ruling. In any event, a request cannot be considered for a ruling when the transactions are completed or where the issues involved are primarily questions of fact. Nevertheless, we are prepared to provide the following comments that we hope will be of assistance to you.

In our view, for the purposes of computing the CDA of a corporation at any particular time, a subsection 83(2) capital dividend that a corporation received in "the period" would be included in its CDA by virtue of paragraph (b) of the definition of "capital dividend account" in subsection 89(1).

However, "the period" is defined in subclause (a)(i)(A) of the CDA definition as "the period beginning at the beginning of its first taxation year (that began after the corporation last became a private corporation and that ended after 1971) and ending immediately before the particular time". Consequently, any subsection 83(2) capital dividends that a corporation received while it was a public corporation or while it was not a private corporation should be excluded from its CDA.

These comments are provided in accordance with paragraph 22 of Information Circular 70-6R5.

Yours truly,

David Palamar
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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