29 April 2008 External T.I. 2007-0260221E5 - Eligible Dividend Designation

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: In the circumstances described, can an eligible dividend designation be made after the time that a dividend is paid.

Position: No.

Reasons: Subsection 89(14) requires the designation be made on or before the time of payment of the particular dividend.

XXXXXXXXXX 						2007-026022
							Marc Edelson, LL.B.
April 29, 2008

Dear Madam:

Re: Eligible Dividend Designation

This is in reply to your electronic mail correspondence to the Department of Finance dated February 16, 2007 and our telephone discussion of November 20, 2007. Unless otherwise stated, all statutory references herein are to the Income Tax Act (Canada).

You have inquired whether a designation may be made for the purposes of subsection 89(14) to treat a taxable dividend as an eligible dividend in circumstances where, at or before the time that the dividend was paid, an election was made pursuant to subsection 83(2) that the dividend be a capital dividend and, subsequent to the payment of the dividend, the dividend was determined to be a taxable dividend, either pursuant to subsection 83(2.1) or as a result of an election being made for the purposes of subsection 184(3).

Your request appears to relate to a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 ("IC 70-6R5") dated May 17, 2002. However, if the situation relates to a completed transaction a request for the Canada Revenue Agency's views must be made to your local Tax Services Office. We can, however, provide the following general comments.

As the designation provided for in subsection 89(14) must be made on or before the time of payment of the particular dividend, the designation cannot be made in this situation where after the time the dividend is paid, the dividend is determined to have been a taxable dividend pursuant to subsection 83(2.1) or an election is made pursuant to subsection 184(3) to deem the dividend to have been a separate taxable dividend. Reference may also be made to our Document 2007-0244111I7 where a similar issue was considered.

Our comments are provided in accordance with the practice outlined in paragraph 22 of IC 70-6R5.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch