Principales Questions: 1. A cash dividend would be paid to Holdco. Holdco would use the cash to purchase a building. Holdco would lease the building to Opco. What is the purpose of the dividend?
2. If Opco repurchases 99.99% of the shares of the capital stock of Opco held by Holdco instead of paying a dividend, would paragraph 55(3)(a) apply with respect to the deemed dividend considering that the cash paid to Holdco in consideration of the repurchase is not supported by safe income and considering that the ACB of the shares repurchased is nominal?
Position Adoptée: 1. General comments.
2. We would have to analyze the potential application of subsection 245(2). This could be an abusive situation considering the purpose of subsections 55(2), 55(3) and 112(1). The CRA could find abusive a situation where cash is distributed to Holdco in consideration for the repurchase or redemption of shares of the capital stock of Opco (even if the cash was owned by Opco at the beginning of the series) if the cash does not come from income taxed in Opco.
Raisons: 1. Question of fact.
2. The offensive situations when a redemption or repurchase of shares is implemented are not limited to those mentioned in Question 11 of the 2015 CTF CRA Round Table. Another example would be where the repurchase and redemption of shares of the capital stock of a corporation is paid with assets owned by the dividend payer at the beginning of the series that includes the redemption and these assets do not come from a source of income that was taxed or that would be taxed as a result of the distribution as consideration for the shares redeemed or repurchased.