Points respecting proposed s. 55(2.1)(b)(ii) included:
- The purpose test in s. 55(2.1)(b)(ii) could apply even if the dividend does not satisfy the purpose in proposed s. 55(2.1)(b)(i) (i.e., there is no gain on the shares)
- “Whether a reduction of value is significant is a question of fact and could be measured in terms of an absolute dollar amount or on a percentage basis.”
- “in-house loss consolidations that were only designed to move losses between related or affiliated corporations and on which we have ruled favourably in the past would not be considered to have a purpose described in proposed subsection 55(2.1). An indication that such purpose is absent in similar loss consolidations is that any ACB that is created in the loss consolidation is eliminated on the unwind of the loss consolidation structure."
- Where a non-participating discretionary shares has no accrued gain, then a dividend paid thereon which violates the purpose test cannot benefit from safe income. However, where this occurs, CRA is prepared to accept that the safe income on the participating shares of the same corporation will not be affected.
- CRA considers it to be offensive to redeem a share for a note in a s. 55(3)(a) reorganization, with the note being used to generates basis in excess of redeemed shares’ ACB.
- Also offensive is "ACB streaming prior to a reorganization under 55(3)(a) or (b), where the redemption would be of low-ACB shares, while the high ACB shares would be preserved."
- Creditor-proofing transactions apparently are considered to per se entail a purpose that engages s. 55(2.1)(b)(ii).
In related oral comments, CRA indicated that "normal course" dividends (albeit with a narrow description of the only clear safe harbour) should not be subject to the new rules and that it is willing to issue opinions (and presumably rulings, once the new rules are enacted) on the non-application of s. 55(2.1).
