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: Whether a taxable dividend paid by a CCPC reduces its GRIP where the taxable dividend received by the recipient CCPC is subject to 55(2).
Position: Yes. The tax treatment of the dividend to the recipient CCPC has no bearing on the computation of the GRIP of the payer CCPC.
Reasons: Reading of relevant legislation.
2007 STEP Round Table
Q. 13 Application of 55(2) and GRIP calculation
If applicable, subsection 55(2) of the Act will deem an otherwise tax-free intercorporate dividend received by a corporation to not be a dividend received by the corporation (see paragraph 55(2)(a)). If the payer corporation had designated the dividend to be an "eligible dividend" pursuant to subsection 89(14), the recipient (assuming the recipient is a Canadian-controlled private corporation) would have included the eligible dividend into its general rate income pool ("GRIP") pursuant to element "G" of the definition of GRIP in subsection 89(1). Given the language in paragraph 55(2)(a), it would appear that the recipient corporation will not have an addition to its GRIP but the payer's GRIP would be depleted (see element "I" of the definition of GRIP in subsection 89(1)).
If our understanding is correct, this would appear to be a permanent depletion of GRIP in circumstances where subsection 55(2) would apply. Can the CRA confirm our understanding.
Response
When a Canadian-controlled private corporation ("CCPC") designates a dividend it pays to its shareholders to be an eligible dividend pursuant to subsection 89(14), the GRIP of the payer CCPC would effectively be reduced permanently. This is so because element I of the definition of GRIP in subsection 89(1) stipulates that the amount of any eligible dividend paid by a corporation in its preceding taxation year must be deducted in the computation of its GRIP. In fact, the tax treatment of the dividend to the recipient CCPC has no bearing on the computation of the GRIP of the payer CCPC.
As far as the CCPC recipient is concerned, the CRA would generally accept that the recipient CCPC adds to its GRIP the part of the dividend that is covered by safe income (the "safe dividend"), provided that the CCPC recipient made or makes a designation under paragraph 55(5)(f) in order that the safe dividend be considered a separate taxable dividend.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2007
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2007
Email this Content