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.
Principal Issues:
When will a dividend be subject to the provisions of subsection 129(1.2).
Position TAKEN:
Question of fact determined by a "purpose test".
Reasons FOR POSITION TAKEN:
Subsection 129(1.2) is an anti-avoidance provision which is applicable if "one of the main purposes" of acquiring shares and paying a dividend was to receive a dividend refund. Accordingly, each situation will have to be determined based on the specific facts of the case.
950396
XXXXXXXXXX A. Seidel
Attention: XXXXXXXXXX
April 19, 1995
Dear Sirs:
This is in reply to your letter dated February 2, 1995 in which you requested our views on the application of subsection 129(1.2) of the Income Tax Act (the "Act") to an inter-corporate dividend.
As stated in the Explanatory Notes to Draft Legislation and Regulations Relating to Income Tax Reform issued in April of 1988, subsection 129(1.2) of the Act is an anti-avoidance provision designed to prevent a corporation from structuring its affairs in such a manner that a dividend refund is generated in the payer corporation without the related shareholder tax being paid by the recipient corporation. Accordingly, a dividend will be subject to the provisions of subsection 129(1.2) of the Act in any situation where "one of the main purposes" of acquiring a share and paying a dividend on that share is to enable a corporation to obtain a dividend refund.
Whether or not "one of the main purposes" of acquiring a share and paying a dividend is to enable a corporation to receive a dividend refund such that subsection 129(1.2) of the Act will apply to the particular dividend is a question of fact which can only be determined at the time that the dividend is paid. Accordingly, we are unable to provide you with any guidelines as to the specific circumstances under which Revenue Canada Customs, Excise and Taxation will apply the provisions of subsection 129(1.2) of the Act to deem a dividend not to be a taxable dividend.
These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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, 1995
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, 1995
Email this Content