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.
SUBJECT: DIVIDEND REINVESTMENT PLANS SECTION: 260,
248(1)D]
April 23, 1992
Audit Directorate Financial Industries
Audit Technical Support Division Division
F. Francis
957-8971
Attention: B. Chisolm
921211
Dividend Reinvestment Plans (DRIPS)
Further to our meeting of April 15, 1992, (Francis/Chisolm), we are forwarding the correspondance concerning DRIPs for your consideration.
It is our understanding that, in a DRIP transaction, a securities dealer would borrow a share on which either a cash dividend or a stock dividend valued at a 5% discount is payable. The dealer would elect to receive the stock dividend which it would sell upon receipt and would, in turn, be required to make a dividend compensation payment and a payment representing a portion of the profit on the DRIP transaction to the lender of the share.
It is our opinion that, where the securities dealer acts as a principal, the above described transaction would be considered a securities lending arrangement as that term is defined under section 260 of the Income Tax Act the "Act"). Furthermore, it is our view that the transaction may be considered as a dividend rental arrangement under subsection 248(1) of the Act since it may reasonably be considered that the main reason for the arrangement is to enable the securities dealer to receive the dividend.
However, it is XXX position that this interpretation would result in the dealer being taxed on an amount that is substantially different from the economic profit. Since he has requested the Department's assessing position with respect to these transactions, we are forwarding the submission for your reply.
for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1992
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© Sa Majesté la Reine du Chef du Canada, 1992
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