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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
SASKATOON DISTRICT OFFICE Specialty Rulings
A L. Murray Directorate
Public Affairs Officer J.D. Jones
First Floor (613) 957-2104
SUBJECT: Reclassification of Wages 7-3992
as Dividends
This is in reply to your memorandum of June 7, 1989, wherein you requested our opinion on the reclassification of wages as dividends in the following situation.
XXX
You have asked for our opinion as to whether or not, in the above situation, the corporation has the option to reclassify salary to dividends at the corporation's year end.
Employment income and dividend income are derived from two separate and distinct sources. Employment income received by an employee is a valuable consideration for the services he renders under a written or verbal employment contract. Dividend income received by shareholders is, in our view, a pro-rata distribution by a corporation among its shareholders of its income or capital gains, as consideration for the capital the shareholders have invested by buying shares of the corporation.
In any given situation the Department's position is that where the facts clearly indicate that amounts paid as dividends are on account of or in lieu of salary, those amounts will be considered to be employment income to subsection 6(3) of the Income Tax Act. In the situation outlined in your memorandum, it appears that the facts clearly indicate that the amount paid are on account of salary and as such should be considered to be employment income.
for Director
Small Business and General Division
Specialty Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
- cc. Mr. R. Roy, ADM Policy and Systems Branch
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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