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:
In circumstances where the payer corporation received a dividend refund, will subsection 55(2) of the Act apply to a taxable dividend that has been fully subject to part IV tax because the recipient is not "connected" to the payer .
Position:
No.
Reasons:
The fact that a dividend refund has been received by the payer of the dividend would not normally be relevant with regard to the following expression in subsection 55(2): "that is not refunded as a consequence of the payment of a dividend to a corporation where the payment is part of the series of transactions or events"
XXXXXXXXXX 972141
Attention: XXXXXXXXXX
September 17, 1997
Dear Sirs:
Re: Subsection 55(2) of the Income Tax Act (the "Act")
We are writing in response to your letter of July 31, 1997 wherein you requested our opinion with respect to the application of subsection 55(2) of the Act to the following hypothetical situation:
Facts
1.Holdco owns common shares of Canco and is not "connected" to Canco as that term is defined in subsection 186(4) of the Act.
2.Canco has refundable dividend tax on hand.
3.Canco redeems the shares held by Holdco for their fair market value. By virtue of subsection 84(3) of the Act, Canco will be deemed to have paid, and Holdco will be deemed to have received, a taxable dividend on the redemption.
4.As a consequence of the deemed dividend, Canco will receive a dividend refund.
5.Holdco will pay Part IV tax in the amount of 1/3 of the taxable dividend.
Subsection 55(2) of the Act does not apply, inter alia, to any portion of a taxable dividend which is subject to tax under Part IV and that "is not refunded as a consequence of the payment of a dividend to a corporation where the payment is part of the series of transactions or events". The fact that a dividend refund has been received by the payer of the dividend would not normally be relevant in this regard.
The foregoing comments represent our general views with respect to the subject matter of your letter. As indicated in paragraph 22 of Information Circular 70-6R3, this is not an advance income tax ruling and is therefore not binding on Revenue Canada.
We trust that our comments will be of assistance.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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