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: Is a private corporation entitled, as a member of a partnership, to include, in computing its capital dividend account ("CDA"), its share of a capital dividend received by a partnership of which it is a member?
POSITION: We allow a corporate partner to include, in computing its CDA, its share of a capital dividend received by the partnership at the time the partner becomes entitled to a share of that dividend.
Reasons: A capital dividend is only included in the partner's CDA if the partner receives the dividend. In the case of a capital dividend received by a partnership, our practice is to allow each eligible corporate partner to include in its CDA, its share of that dividend at the time the partner becomes entitled to receive that share.
XXXXXXXXXX 2003-003859
Shaun Harkin, CMA
December 4, 2003
Dear XXXXXXXXXX:
Re: Technical Interpretation Request: Capital Dividend Account
This is in reply to your letter of September 5, 2003 wherein you requested our views on whether a corporate partner may include in computing its capital dividend account ("CDA") an amount in respect of capital dividends received by a partnership. Our understanding of the situation in which you are concerned is as follows. A partnership is formed under the laws of a province and all the partners are private corporations resident in Canada. The partnership owns shares of a Canadian-controlled private corporation ("CCPC"). The CCPC pays a capital dividend on the shares owned by the partnership.
It is our practice to allow a private corporation that is a member of a partnership to include, in computing its CDA, its share of a capital dividend received by the partnership. The addition to the CDA of the partner would be equal to the amount added to the adjusted cost base of that partner's interest under subparagraph 53(1)(e)(ii) of the Act.
We would normally expect the partnership agreement to determine a particular partner's share of a capital dividend received by the partnership and the timing of its inclusion in the CDA of the partner. For example, if the partnership agreement provides that a particular corporate partner is entitled to a share of a capital dividend at the time the dividend is received by the partnership, we would allow that partner to include its share of the dividend in its CDA at that time. However, if the partnership agreement provides that a capital dividend received by the partnership is to be shared by the members of the partnership at the end of the partnership's fiscal period, a particular corporate partner would only be permitted to include its share of that dividend in its CDA at that time.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this disclaimer in all instances in which we provide an opinion.
We trust the above comments are of assistance.
Yours truly,
Daryl Boychuk, LL.B
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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