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.
Principal Issues: timing for substantial interest test
Position: immediately before redemption of shares
Reasons: past position should be maintained
XXXXXXXXXX 2005-011853
Denise Dalphy, LL.B.
(613) 941-1722
March 9, 2005
Dear XXXXXXXXXX:
Re: Part VI.I Tax
We are writing in reply to your e-mail of February 28, 2005 wherein you requested an opinion relating to the following situation. If a shareholder has a substantial interest in a corporation, within the meaning assigned by subsection 191(2) of the Income Tax Act (the "Act"), a dividend paid by a corporation to a shareholder who had such an interest at the time the dividend was paid would be an "excluded dividend" for the purposes of Part VI.1 of the Act. If all or a portion of the shareholder's shares are redeemed, with the result that the corporation is deemed by subsection 84(3) of the Act to have paid a dividend thereon, is the "substantial interest" test applied before or after the redemption?
Written confirmation of the consequences inherent in particular transactions are given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5. Nonetheless, we shall provide some comments of a general nature.
In the situation described, the determination of whether or not a shareholder has a substantial interest in a corporation would be made immediately before the redemption of the shares.
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 Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.
Yours truly,
Steve Tevlin
Manager
Corporate Financing Section
Financial Industries Division
Income Tax Rulings Directorate
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