Dividend

Before finding that a distribution in kind by a Bermudan corporation ("Tyco") was a taxable dividend to the taxpayer under s. 90, Rip CJ quoted with approval (at para. 13) the statement in Special Risks that a dividend is:

any distribution by a corporation of its income or capital gains made pro rata among its shareholders.

The taxpayer was a shareholder of a Bermudian corporation ("Tyco"), and received shares as part of the same spin-off described in Capancini, where it was concluded Tyco had never owned the shares received by the taxpayer and therefore that they were not dividends in the hands of the taxpayer under s. 12(1)(k) and s. 90(1). However, Capancini had been heard under informal procedure. In the present case the Minister introduced evidence establishing that the two spin-off corporations were incorporated in Bermuda in 2000 as wholly-owned subsidiaries of Tyco. Therefore, the conclusions in Capancini could not be relied on and V.A. Miller found that the shares of the two spin-off corporations were dividends in kind.

Under a reorganization, the Canadian-resident taxpayer received, in exchange for shares he previously held of Tyco International Ltd. (a non-resident corporation), one share of each of two new corporations and one new share of Tyco International Ltd. The Minister assessed on the basis that the receipt of the shares of the two new corporations represented a dividend to the taxpayer. In finding that the taxpayer had not received a dividend, Bowie, J. noted that the shares of the two new corporations were never owned by Tyco International Ltd. and, instead, were created in the course of a reorganization, and that the distribution of the new shares did not represent a "dividend" in the ordinary meaning of the word, namely, a distribution of a pro rata portion of a company's earnings or profits.

Before going on to find that the taxpayer had received a dividend notwithstanding the absence of formal corporate action by the directors (i.e., she and her husband), Rip TCJ. stated (at p. 957) that "the state of corporate law today is that the formalities required by statute or the articles of the corporation may be bypassed if the shareholders or directors who have the power to authorize the action unanimously approve of the action".

In order to minimize German corporate tax payable by its German subsidiary ("GmbH"), the taxpayer "Plc"), which was a UK company, formed a silent partnership (stille gesellschaft) with GmbH, which entitled it to annually receive most of the profits of Gmbh. In order for Plc to receive a UK foreign tax credit for local trade tax payable by subsidiaries of GmbH, it was necessary to conclude either that (1) the silent partnership was fiscally transparent, so that GmbH as the silent partner was to be treated for UK corporation tax purposes as entitled to a share of the dividends paid by the GmbH subsidiaries to GmbH (all of which, in turn, were paid to Plc), or (2) that the share of the profits of the silent partnership paid to Plc could be treated as dividends paid by GmbH to Plc.

After finding against Plc on the first issue, Peter Gibson LJ found that an extended definition of "dividend" in the Article of the UK-German Treaty respecting withholding tax (which included a participation in a silent partnership) did not extend to the relevant Article of that Treaty according the UK foreign tax credit. In the absence of the extended definition applying, Plc's share of GmbH's profits under the silent partnership did not qualify as a dividend under the ordinary meaning of that term (p. 262):

The ordinary meaning of 'dividend' is that it is a payment of a part of the profits for a period in respect of a share in a company (Esso Petroleum Co Ltd v Ministry of Defence [1989] BTC 500 at p. 502; [1990] Ch 163 at p.165)....To treat Plc's entitlement to a share of the profits of GmbH under the silent partnership as a dividend, when that payment was unrelated to shares in GmbH and the partnership is not a company, would be inconsistent with the ordinary meaning of 'dividend'.

A proposed distribution by a public company to its common shareholders of a subsidiary pursuant to a butterfly reorganization was found to represent a proposed dividend for corporate law purposes. Austin J. stated (at p. 567):

"There is a good deal of authority for the proposition that, as a matter of law, an operating company can only make two kinds of distribution to its shareholders - retained income and capital. The former is frequently called a dividend."

Amounts paid to the taxpayer one day prior to the sale of their shares to the purchaser were found to be dividends rather than remuneration or management fees given that the only evidence favouring the latter interpretation was the deduction of the amount so paid in the paying corporation's financial statement following the appointment of new accountants by the purchaser.

The purported payment of a dividend was ineffective because payment of a dividend would have impaired the capital of the corporation contrary to the provisions of the Alberta Companies Act.

Payments made to a company's shareholder that were treated in the company's books as dividends, were not dividends for purposes of the Bankruptcy Act because they were intended to compensate the shareholder for his activities on behalf of the company, rather than being related to his capital interest in the company. The payments were designated in the books as dividends only for tax-planning reasons.

A proposed distribution by a public company to its common shareholders of a subsidiary pursuant to a butterfly reorganization was found to represent a proposed dividend for corporate law purposes. Austin J. stated (at p. 567):

"There is a good deal of authority for the proposition that, as a matter of law, an operating company can only make two kinds of distribution to its shareholders - retained income and capital. The former is frequently called a dividend."

A payment received by the taxpayer that was stated to be made out of "paid-in capital and paid-in surplus" pursuant to the provisions of the Wisconsin Business Corporations Act was found to be a dividend for purposes of the Act. Mr. Davis stated (at p. 585) that:

As the funds distributed by Marine Capital Corporation admittedly represented nothing more than premiums paid into the treasury on the purchase of shares at prices in excess of their par value of $1 per share, the share capital was neither disturbed nor impaired by the distribution of these funds.

And (at p. 586) that:

There is no question but that the appellant received its proportionate share of the fund, it having been distributed on the basis of the number of shares of Marine Capital Corporation held by each shareholder. ...[T]herefore...the payment...was a dividend received by the appellant... . The accepted ordinary meaning is to be given to the word as it is used in the Income Tax Act. The Shorter Oxford Dictionary states that the word 'dividend' is derived from the Latin word dividendum and defines it as 'a sum of money to be divided among a number of persons; a portion or share of anything divided, especially the share that falls to each distributee'."