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: How a cash payment received upon a demutualization of an insurer is to be taxed.
Position: As a taxable dividend.
Reasons: Draft legislation provides for such a treatment.
xxxxxxxxxx 992272
September 16, 1999
Dear XXXXXXXXXX:
Re: Demutualization of XXXXXXXXXX
This is in reply to your recent letter which we received on August 19, 1999 concerning the demutualization of XXXXXXXXXX. It is our understanding that you have chosen to receive cash upon such a demutualization. You have requested assistance in determining the income tax implications to you with respect to the receipt of this money.
A cash payment made upon a demutualization will be taxed as a corporate dividend. The taxable dividend amount will be the sum of the cash payment you will receive plus a gross-up amount equal to 25% of the original cash amount. As a result, 125% of the original cash amount you received will be included in your income in the year of receipt.. You will be entitled to claim a dividend tax credit which is equal to two-thirds of the gross-up (25% of your original amount received). We enclose a copy of Interpretation Bulletin It-67R3 published by Revenue Canada which may assist you in understanding the income tax implications of receiving a taxable dividend from a corporation resident in Canada.
The amount of tax that you have to pay in respect of the cash you receive as a consequence of the demutualization will be based on your marginal rate of tax which will depend on your level of income subject to tax in that year. We suggest that you contact the Revenue Canada toll free number which you referred to in your letter and ask them to explain to you how you may be able to estimate your marginal tax rate. You could ask to be referred to the Client Services at your nearest Tax Services Office to assist you in this matter.
If you require further assistance please contact Michèle Trotier of our Directorate at 613-957-3494.
It is our understanding that XXXXXXXXXX would have provided you with some documentation on the income tax implications on receiving cash upon their demutualization. You may want to verify this point with XXXXXXXXXX.
We trust that the above information will be of assistance to you.
Yours truly,
F. Lee Workman
Manager
Financial Institutions
Financial Industries 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, 1999
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, 1999
Email this Content