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: An update on our position as stated at the 2005 STEP CRA Roundtable (question 3)
Position: The response to question 3 of the 2005 STEP CRA Roundtable remains our position.
Reasons: See above
2013 STEP CANADA ROUNDTABLE, June 10 & 11, 2013
QUESTION 12. RDTOH and Dividend Refunds
Subsection 129(1.2) can deny a dividend refund to a corporation in certain circumstances. In particular, this rule applies where a person acquires shares of the corporation where one of the main purposes was to enable the corporation to obtain the dividend refund. This limitation does not contain an exemption for related party transactions. Accordingly, the dividend refund could be denied in a wide range of circumstances. In 2005, the CRA was asked to clarify its position on this rule. Can you update us on the CRA's position in this regard?
CRA Response
We stated at the 2005 STEP CRA Roundtable (question 3) that the application of the purpose test in subsection 129(1.2) had to be determined in light of the specific facts of a particular situation. We further stated that a favourable subsection 129(1.2) ruling was issued on the proposed post-mortem estate planning transactions described in document #2004-008855. Lastly, we reaffirmed the position as stated at the 2002 APFF Roundtable (question 10) that where the purpose test in subsection 129(1.2) was met, subsection 129(1.2) could technically apply to deny a dividend refund to a payer corporation even if tax was paid by the shareholder on the dividend received from the payer corporation.
We confirm that the response to question #3 of the 2005 STEP CRA Roundtable remains our position. We would also mention that, recently, in documents #2010-0377601R3 and 2012-0456221R3, we have issued favourable subsection 129(1.2) rulings on proposed post-mortem estate planning transactions.
2013-048036
Daniel Wong
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