Joint Committee makes submissions on proposed s. 55 amendments

In a further comment on the 2015 Budget proposals, the Joint Committee has submitted that the proposed s. 55(2.1)(b)(ii) will create significant uncertainty respecting routine cash movements within Canadian corporate groups, a concern which has been magnified by the narrowing of the s. 55(3)(a) safe harbour to cover only s. 84(3) deemed dividends.  Leaving aside suggestions to change the rules’ broader thrust, they recommend that s. 55(2.1)(b)(ii) apply only to "loss shares" (consistently with the primary motivation to override D&D planning), that the amendments clarify that routine intra-group cash transfers are not subject to the proposals, and that s. 55(3)(a) revert to covering all dividends.  A detailed suggested redraft is appended.

The proposed removal of s. 55(2)(b) could result in over-inclusions in income or double taxation.  For example, if a share with and FMV, ACB and PUC of $100, $60 and $10 is redeemed, under the proposals it would have a capital gain of $90 rather than $40.  Other recommendations in the excellent submission include that the stock dividend proposals not apply to a stock dividend paid in shares of the same class (which would avoid brain damage in normal public company stock dividends).

Neal Armstrong. Summary of 2015 Budget s. 55 rules under Joint Committee Submissions.