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.
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5-921163 |
24(1) |
J. Teixeira |
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957-2095 |
Attention: 19(1)
June 16, 1992
Dear Sirs:
Re: Request for Technical Interpretation Subsections 55(2) and 15(1) of the Income Tax Act (the"Act")
This is in reply to your letter of April 14, 1992 requesting our opinion as to whether subsections 55(2) or 15(1) of the Act will apply to the situation outlined in your letter.
As the situation in your letter appears to relate to actual or proposed transactions, we will be providing only general comments in this letter. Revenue Canada, Taxation (the "Department") will only provide assurance as to the outcome of a proposed transaction in the context of an advance income tax ruling, as stated in Information Circular 70-6R2, dated September 28, 1990.
Our comments:
Subsection 55(2) of the Act will apply in a situation where one of the purposes of a dividend received as part of a series of transactions, determined with reference to subsection 248(10) of the Act, is to effect a significant reduction in the portion of a capital gain that, but for the dividend, would have been realized on the disposition at fair market value of the shares of the capital stock of a particular corporation that immediately before the dividend could reasonably be considered to be attributable to anything other than income earned or realized by the particular corporation after 1971 and before the series of transactions commenced.
However, subsection 55(3) of the Act exempts from subsection 55(2) certain dividends that would otherwise be subject to its application. In this context, paragraph 55(3)(a) of the Act, provides in general terms, that subsection 55(2) will not apply to a dividend received by a corporation if the dividend was received as part of a series of transactions or events that did not result in
(i) a disposition of any property to a person with whom the corporation that received the dividend was dealing at arm's length,
or (ii) a significant increase in the interest in any corporation of any person with whom the corporation that received the dividend was dealing at arm's length.
Prior to a divorce, which occurs as a final step in the series of transactions, the husband and wife will be related and therefore deemed not to deal at arm's length for the purposes of the Act. It is our view that, in these circumstances, the paragraph 55(3)(a) arm's length determination may ordinarily be made at the time of the disposition of property or increase in interest, at which time the spouses are still married, not at the end of the series of transactions, when they are divorced.
In addition, pursuant to paragraph 15(1)(b) of the Act, no benefit is to be included in a shareholder's income under subsection 15(1) of the Act on the payment of a dividend to the shareholder.
The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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