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.
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 24(1) 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
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1992
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1992
Email this Content