22 March 1990 Income Tax Severed Letter AC74440 - Dividends Received from Non-resident Corporation

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.

March 22, 1990

TORONTO DISTRICT OFFICE Specialty Rulings
Audit Review Section Directorate
Business Enquiries Foreign Section
Group 148 2-1 G. Middleton
957-2129
Attention: G. Cappella
7-4440
24(1)

This is in reply to your memorandum of October 16, 1989 in which
you asked for our views about how 24(1) common
shares received by Canadian residents in the situation described
below should be treated for Canadian tax purposes.

SITUATION

24(1)

Subsection 90(1) and paragraph 12(1)(k) of the Act require that a shareholder who is a Canadian resident include in computing the amount of a dividend received from a non-resident corporation.

24(1)

Pursuant to subsection 52(2) of the Act, a Canadian resident
shareholder of 24(1) who receives 24(1)
common shares as a dividend-in-kind shall be deemed to have
acquired these shares at a cost equal to their fair market value
at the time of the dividend. The adjusted cost base of the
shares of 24(1) would not change as a result of
this transaction.

We are aware of the argument that the economic position of a Canadian resident has not changed when such a resident receives a dividend-in-kind from a U.S. corporation in this type of situation. However, Canadian income tax law does not provide for an income tax deferral when this happens.

Please find attached a copy of a memo dated February 23, 1990 to the Competent Authority Section of the International Audit Division. This memo sets out our view with respect to the application of paragraph 8 of Article XIII of the Canada-U.S. Tax Convention 1980 to the type of transactions described above. This memo also points out that, generally, for Canadian resident shareholders who are not citizens of the U.S. there is no potential for double taxation and that there may be relief from double taxation of Canadian resident shareholders who are U.S. citizens if they apply to the U.S. tax authorities for such relief.

We trust this will be of assistance to you.

K.H.M. Section Chief Foreign Section Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

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