CRA indicates that a dividend refund, from a redemption also generating an AOC, arises in the taxation year commencing with the AOC

ACo repurchased all the shares held by one of its 50% shareholders so that there was an acquisition of control (“AOC”) by the other shareholder and a consequential deemed dividend. Will the resulting dividend refund to ACo arise in its new taxation year commencing as a result of the AOC, and would the answer be affected by whether ACo elects under s. 256(9) for the AOC to occur at the time of its actual occurrence rather than at the beginning of the day?

CRA indicated that, either way, the dividend refund to ACo computed under s. 129(1)(a) would be for its new taxation year. CRA in its oral comments did not explain this answer, but it seems to make sense given that the AOC coincides with the event (the repurchase) generating the deemed dividend, and s. 249(4) deems the old taxation year to have ended immediately before the AOC (irrespective of which of the two times the AOC is considered to have occurred).

Neal Armstrong. Summary of 15 June 2021 STEP Roundtable, Q.10 under s. 129(1)(a).