Section 82

The taxpayer, Ms. Trower, separated from her husband in 2015 and ceased to be a shareholder and director of their company (“Cove” – previously owned on a 49/51 basis) on or shortly before October 2, 2016. Cove transferred $78,457 to their joint bank account in 2016 and under $3,000 to her personal account. Although Ms. Trower had agreed to income splitting for the 2015 year, she had not agreed to do so for 2016. Nonetheless, a resolution was prepared and signed in 2017 by Mr. Trower, at that time the sole director and shareholder of Cove, showing that it paid dividends of $50,342 to Ms. Trower in 2016. She had not agreed to this treatment.

In reversing the resulting assessment by CRA of Ms Trower to include a taxable dividend in her income for 2016, Monaghan J stated (at paras 37-38, 46):

No dividend is payable until such time as it is declared. In this case the dividend was not declared (or approved) until February 2017 and so no dividend was payable in 2016.

… I accept that practice in the “real world” does not always conform with best practice. … [and] that directors and/or shareholders may make a decision and act upon it, even though they may not record that decision in writing until a later date. But that cannot be said to have happened here. All of the evidence is that the only two relevant people, Mr. and Ms. Trower, never agreed that the transfers would be dividends. The decision was a unilateral one by Mr. Trower. He did not have that power before he became the sole shareholder and director.

… While I am not able to determine the nature of the transfers in 2016, in my view, absent her agreement, they could not be and are not dividends paid to Ms. Trower in 2016. Ms. Trower has demolished the Minister’s key assumption of fact underlying the assessment of her 2016 taxation year regarding dividends.

Webb J. noted that the gross-up amount will increase a taxpayer's income for the purposes of assessing a 163(1) penalty, because 163(1) calculates the 10% penalty on the income amount, not the tax owing.

Dividends that were purportedly paid to the taxpayers "as of" December 30, 1990 were dividend income to the taxpayers in their 1991 taxation years given that the dividends were not declared until February 13, 1991, the amount of the dividends was not known until that date, and the dividends would not have been declared or paid if a sale of shares of the corporation had not closed on that date.

In finding that a dividend paid by a South African company out of a capital gain realized by it was "income arising from possessions out of the United Kingdom" for purposes of Case V of Schedule D, Lord Morton stated (p. 446):

"Prima facie a dividend paid on shares is income. It has been held that, even if a distribution by way of dividend has been made out of profits arising from some dealing with the company's capital assets, the distribution is income, as between the persons beneficially interested in capital and income respectively (see In re Bates, [1928] Ch. 682; Hill v. Permanent Trustee Company of New South Wales, Ltd., [1930] A.C. 720; In re Doughty, [1947] Ch. 263).

The taxpayer, a UK life insurance company which was managed in London and had foreign branch businesses, was assessed for interest and dividends which it received on foreign securities held in the hands of agents abroad, and which were reinvested abroad, on the basis that it received such income in the U.K. In finding that the taxpayer was not taxable on such amounts, Lord Brampton stated (at p. 475):

[I]t is conceded that no part of the money in question was ever received in the United Kingdom in specie… . But it was argued that… it was "constructively" so received in the accounts of the Society. …If it means something differing from or short of an actual receipt, then it seems to me that a constructive receipt is not recognised by the Statute, which in using the word "received" alone, must be taken to have used it having regard to its ordinary acceptation. … I am not myself prepared to say that what amongst business men is equivalent to a receipt of a sum of money is not a receipt within the meaning of the Statute… . But…[a] mere entry in an account which does not represent such a transaction does not prove any receipt… .