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 f~lowing 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: Conditions under which a public corporation can return paid-up capital to its shareholders tax-free.
Position: A Canadian public corporation can only return paid-up capital to its shareholders tax-free on the winding-up, discontinuance or reorganization of its business.
Reasons: See subsections 84(4), 84(4.1) and 84(2).
991806
XXXXXXXXXX T. Lanzer
(613) 957-2129
Dear XXXXXXXXXX:
The Honourable Martin Cauchon, Minister of National Revenue, has asked me to reply to your letter of June 2, 1999, addressed to his predecessor, the Honourable Herb Dhaliwal, concerning return of capital.
Specifically, your letter refers to a May 21, 1999 article from the Globe & Mail which mentions that a Revenue Canada spokesman stated that a return of capital is tax-free only if a company is being wound down.
Revenue Canada does not have an official document that explains the subject of your inquiry. We can, however, provide the following explanation.
The Income Tax Act distinguishes between returns of capital by private and public corporations. A Canadian private corporation can return paid-up capital to its shareholders taxfree. Any payment by a private corporation in excess of its paid-up capital is deemed to be paid by the corporation and received by the person to whom it is paid, as a dividend.
A Canadian public corporation can only return paid-up capital to its shareholders tax-free on the winding-up, discontinuance or reorganization of its business. Any return of paid-up capital by a public corporation not made under these circumstances is deemed to be paid by the corporation and received by the person to whom it is paid, as a dividend.
I trust my comments explain the Department's position on this matter.
Yours sincerely,
Bill McCloskey
Assistant Deputy Minister
Policy and Legislation Branch
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