10 February 2009 External T.I. 2009-0309111E5 - Eligible Dividend Designations

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: Would CRA allow for written notification on T3 and T5 slips as sufficient notification pursuant to subsection 89(14) of the Income Tax Act for the payment of eligible dividends for the 2008 and subsequent years?

Position: No. In accordance with our December 20, 2006 news release titled "Designation of Eligible Dividends" ("2006 Press Release"), CRA would accept designations of eligible dividends on T3 and T5 slips for all corporations solely for the 2006 year. For 2007 and subsequent years, our administrative policy is that notification of eligible dividends must be before or at the time the dividend is paid using an acceptable method as described in our 2006 Press Release.

Reasons: Wording of the Act.

2009-030911
XXXXXXXXXX S. Snell
(613) 957-2095
February 10, 2009

Dear XXXXXXXXXX ;

RE: Eligible Dividend Designations and T3 and T5 Written Notification for 2008 and Subsequent Years

We are writing in response to your email inquiry dated February 8, 2009 in which you request clarification as to our position as presented at the 2008 Canadian Tax Foundation ("CTF") Round Table in respect of written notification on T3 and T5 slips for the payment of eligible dividends for the 2008 and subsequent years.

Sub-question 4 of Question 1 of the 2008 CTF Round Table and Canada Revenue Agency's ("CRA") written response (which is unpublished as at the date of issuance of this letter), are as follows:

In 2006, the CRA allowed handwritten notification for the payment of eligible dividends on T3 slips and T5 slips. The CRA indicated at the 2006 CTF Annual Conference CRA Round Table that it will consider whether this practice should be extended to subsequent taxation years. Will the CRA allow for handwritten notification on T3 and T5 slips as sufficient notification for the payment of eligible dividends for the 2008 and subsequent years?

Response 4

Our position at the 2006 Round Table was taken in view of the fact that, at the time of our comments, the eligible dividend legislation had not yet received Royal Assent. As a result, the coming into force provisions, which provided that notification by May 22, 2007 for any dividends paid before February 21, 2007 would comply with subsection 89(14), were not yet published. Our comments were made, and the coming into force provisions were adopted, to deal with cases where corporations had paid eligible dividends prior to the legislation receiving Royal Assent. Once the eligible dividend legislation became law, these particular timing issues were no longer relevant. Accordingly, we will not extend the practice of allowing for handwritten notification on T3 and T5 slips.

The foregoing position regarding written notification on T3 and T5 slips in respect of 2007 and subsequent years is consistent with our December 20, 2006 news release titled "Designation of Eligible Dividends" (2006-0217891Z0) ("2006 Press Release"). In accordance with the 2006 Press Release, the CRA would accept designations of eligible dividends on T3 and T5 slips for all corporations solely for the 2006 year. For 2007 and subsequent years, our administrative policy is that notification of eligible dividends pursuant to subsection 89(14) of the Income Tax Act must be before or at the time the dividend is paid using an acceptable method as described in our 2006 Press Release as follows:

For 2007 and Subsequent Taxation Years

Public Corporations

For 2007 and subsequent taxation years, for public corporations, we will accept that notification has been made if, before or at the time the dividends are paid, a designation is made stating that all dividends are eligible dividends unless indicated otherwise. Acceptable methods of making a designation are posting a notice on the corporation's website, and in corporate quarterly or annual reports or shareholder publications. We will consider that a notice posted on a corporate website is notification that an eligible dividend is paid to shareholders until the notice is removed. Similarly, a notice in an annual or quarterly report that an eligible dividend has been paid is considered valid for that year or quarter, respectively. Alternatively, if a public corporation issues a press release announcing the declaration of a dividend, a statement in the press release indicating that the dividend is an eligible dividend will be sufficient proof that notification was given to each shareholder.

All Other Corporations

For 2007 and subsequent taxation years, for all corporations other than public corporations, the notification requirements of proposed subsection 89(14) must be met each time a dividend is paid. Examples of notification could include identifying eligible dividends through letters to shareholders and dividend cheque stubs, or where all shareholders are Directors of a corporation, a notation in the Minutes.

We trust that our comments, which are provided in accordance with the practice outlined in paragraph 22 of IC-70-6R5, are of assistance.

Yours truly,

Stéphane Prud'Homme, LL.B, M. Fisc.
Manager
Mergers and Acquisitions Section
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch