10 June 1990 Ministerial Letter 901268 F - Stock Dividend Conferring Shareholder's Benefit

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.

Dear Sirs:

Re:   Subsection 15(1.1) of the Income Tax Act (the "act")

We are writing in response to your letter of June 8, 1990 wherein you requested our views as to whether subsection 15(1.1) of the Act would apply to the following hypothetical fact situation described in you letter.

Situation

1.     

2.     

3.     

4.             24(1)

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7.     

Our comments

The situation outlined in your letter appears to involve actual proposed transactions.  As you may be aware, confirmation as to the tax consequences of actual proposed transactions can only be provided in the contest of an advance income tax ruling.  The procedures for requesting an advance income tax ruling are outlined in Information circular 70-6R dated December 18, 1978 issued by Revenue Canada, taxation and the related Special Release thereto.

However, we can offer the following general comments.

Subsection 15(1.1) of the Act applies to the payment of a stock dividend where one of the purposes of the payment was to significantly alter the value of the interest of any specified shareholder of a corporation.  It is our view that subsection 15(1.1) would ordinarily not apply unless the payment of the stock dividend itself would result in an increase or decrease in the value of a specified shareholder's interest in the payor. Such an increase or decrease would not result if the stock dividend were paid to all shareholders of the payor pro rata in proportion to their shareholdings. 24(1)

It is, therefore, our view that subsection 55(2) of the Act could apply to the deemed Shares held by holdco because the subsequent sale of the shares of Opco may constitute part of series of transactions or events that includes the transactions described in your letter.  In this regard, we would like to point out that

(i)     subsection 248(10) of the Act contains an extended definition of the term "series of transactions orevents", and

(ii)     it is our view that a preliminary transaction will form   part of a series of transactions referred to in subsection 248(10) of the Act if, at the time the         preliminary transaction is carried out, the taxpayer has  the intention to implement the subsequent transactions    constituting the series and the subsequent transactions   will be part of a series although at the time of the completion of preliminary transaction the taxpayer either had not determined all of the important elements   of the subsequent transactions including, possibly, the   identity of their taxpayers involved, or had lacked the   ability to implement the subsequent transactions.

We trust that the above will be of assistance.

Yours truly,for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental  Affairs Branch