17 August 1989 Income Tax Severed Letter AC74103 - Capital Dividend Account

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.

August 17, 1989

Assessing and Enquiries           Specialty Rulings
  Directorate                       Directorate
Trust and SER Assessing Section   T. Harris
                                  957-2128
Attention:  D.I. Wyse
                                  Your file: Hav 4533-3-4

Subject: Capital Dividend Account           File: 7-4103
         Paragraph 89(1)(b)

This is in response to your memorandum of July 6, 1989 wherein you requested our views concerning the treatment of capital gains reserves when computing a corporation's capital dividend account (CDA) under paragraph 89(1)(b) of the Income Tax Act (the "Act").

You have indicated that you interpret paragraph 11 of Interpretation Bulletin IT-66R5 to mean that a reserve claimed under subparagraph 40(1)(a)(iii) CDA immediately before a dividend is paid or becomes payable and that any reserve that will be claimed at the end of that taxation year must also be reflected in the calculation.

In our view a reserve claimed under subparagraph 40(1)(a)(iii) of the Act at the end of a taxation year should be brought back into income at the commencement of the subsequent taxation year end, as such, may be included in the CDA calculation at any time in the subsequent taxation year. Also, as stated in paragraph 11 of IT-66R5 , the amount of any additional reserve to be claimed at the end of the subsequent taxation year should be reflected in the CDA calculation. Accordingly, we agree with your interpretation of this provision and the example cited in your memorandum.

Chief Corporate Reorganizations III Section Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch