Principal Issues:
(1) Whether a private corporation can elect to pay a dividend as a tax free capital dividend, in the year the corporation has disposed of goodwill in respect of a business, equal to the amount included to the corporation's capital dividend account (CDA) related to the disposition in that year ?
(2) Whether the CCRA intends to apply Part III of the Act to 83(2) elections made based on a CDA computed erroneously in accordance with the rules existing prior to the introduction of (c.1)(i) and (c.2)(i) of the definition of CDA under 89(1) (the old rules), in taxations years ending between February 27, 2000 and December 21, 2000 ?
Position:
(1) No
(2) Relief will be determined on a case by case basis by the Technical Applications and Valuations Division of the Audit Directorate of the CCRA with respect to capital dividends paid on the basis of the old rules during taxation years ending after February 27, 2000.
Reasons:
(1) The interaction of 83(2) and (c.1)(i) and (c.2)(i) of the definition of CDA under 89(1) is such that the amount included to the CDA in a particular year related to the disposition of goodwill in respect of a business can be paid out as a capital dividend only in a taxation year subsequent to the taxation year of the disposition.
(2) The decision is this administrative division's responsibility.