Section 89

Table of Contents

Subsection 89(1) - Definitions

Adjusted Taxable Income

Administrative Policy

20 June 2016 External T.I. 2016-0648481E5 F - Small business deduction and GRIP

Can a corporation choose not to take the small business deduction to enable it to add an amount to its general rate income pool account ("GRIP "),...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 125 - Subsection 125(1) SBD discretionary 37

Canadian corporation

Administrative Policy

88 C.R. - Q.9

A corporation incorporated in a foreign jurisdiction that is continued in Canada is not a Canadian corporation as it was not incorporated in Canada.

Capital Dividend Account

Cases

Canada v. Innovative Installation Inc., 2010 DTC 5175 [at 7317], 2010 FCA 285

In order to ensure payment of a loan owing by the taxpayer ("Innovative") to a bank (RBC) on the death of Innovative's principal (Mr Peacock),...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt indirect receipt through debt repayment 156

See Also

CSI Development Corp. v. The Queen, 99 DTC 1139, [1999] 3 CTC 2421 (TCC)

McArthur TCJ. found that the amount added to the taxpayer's capital dividend account as the result of the realization by a partnership of an...

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Administrative Policy

3 December 2015 External T.I. 2015-0613761E5 F - Capital Dividend Account

Where a corporation donates ecologically sensitive lands so as to be eligible for the s. 110.1(1)(d) deduction, what amount will be added to its...

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9 October 2015 APFF Roundtable Q. 6, 2015-0595551C6 F - Capital Dividend Account

If Holdco (a CCPC) has realized $1M in allowable capital losses on its public company portfolio, its subsidiary (Opco) has realized a $1M taxable...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(z.1) amalgamation can cause a combined positive CDA balance to be zeroed 161

18 August 2014 External T.I. 2014-0540361E5 F - CDA and the deeming rules of 40(3.6) or 112(3)

A corporation's capital dividend accounts will not be reduced by a loss on the redemption of shares held by it where such loss is deemed to be nil...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(b) ss. 112(3) and 40(3.6) stop-loss rules modify operation of s. 40(1)(b) 128

19 December 2013 Internal T.I. 2013-0490751I7 - Adjustment to a taxpayer`s CDA

The taxpayer, which was a private corporation, disposed of eligible capital property to a non-arm's-length non-resident sister company...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(8) s. 247(2) trumps s. 69(1) 80

25 March 2013 External T.I. 2012-0447171E5 - Creditor's Group Life Insurance and CDA

Creditor's group life insurance products generally have no cash surrender value, premiums payable with respect to a particular debtor for this...

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24 May 2012 External T.I. 2012-0441151E5 - Donation of flow-through shares - 40(12) and CDA

Where a private corporation holding flow-through shares as capital property gifts the shares to a qualified donee, it will include the capital...

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8 May 2012 CALU Roundtable Q. 6, 2012-043564

Shareholders of a corporation use a buy-sell agreement to requires the corporation to acquire insurance on the shareholders' lives (and pay the...

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8 May 2012 CALU Roundtable Q. 6, 2012-043564

On the same facts as for Q. 6.1 above except that the buy-sell agreement gives an irrevocable direction to the insurer to pay the proceeds over to...

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8 May 2012 CALU Roundtable Q. 6, 2012-043564

On the same facts as for Q. 6.1 above except that the insurance policy names the Insurance Trustee as the beneficiary of the policy, for example,...

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18 June 2007 External T.I. 2006-0215001E5 - Capital Dividend Account

Each of the partners of a partnership with a fiscal period end of April 30, 200X and which disposed of eligible capital property in that year is a...

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16 August 2004 External T.I. 2004-0090461E5 - Computation of Balance in Capital Dividend Account

A capital gains reserve taken in a taxation year will be included in the calculation of the capital dividend account balance on the first day of...

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4 December 2003 External T.I. 2003-0038595 - CAPITAL DIVIDEND ACCOUNT

"We would normally expect the partnership agreement to determine a particular partner's share of a capital dividend received by the partnership...

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21 March 2002 External T.I. 2001-0115265 F - 89(1)(c.1)(i)&(c.2)(i) Capital Div. Acc.

An addition to the CDA as a result of a disposition of goodwill can only be accessed through a capital dividend following the taxation year in...

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22 November 2000 External T.I. 2000-0049415 - Dividends - General

"Where, for example, a particular corporation is a member of a partnership which realized a capital gain in its fiscal period ending April 30,...

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26 June 1998 External T.I. 9729995 - 89(1), CAPITAL DIVIDEND ACCOUNT

Because the amount in paragraph (a) cannot be less than zero, a company had a positive capital dividend account as a result of disposing of...

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Income Tax Technical News, No. 10, 11 July 1997, "Life Insurance Policy Used as Security for Indebtedness"

26 July 1994 External T.I. 9415675 - CAPITAL DIVIDEND ACCOUNT

Where a corporation is the beneficiary of a life insurance policy but is not the policyholder and has, therefore, not paid the premiums in respect...

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15 February 1994 Ruling 9402353 - LIFE INSURANCE - CAPITAL DIVIDEND ACCOUNT

There is no requirement that the shareholders to whom a capital dividend is to be paid must have been shareholders at the time the corporation...

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20 October 1993 External T.I. 9323775 F - Capital Account and Life Insurance Proceeds in Trust

In order for life insurance proceeds to be included in the capital dividend account of a corporation, the proceeds must be considered to be...

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20 September 1993 Income Tax Severed Letter 9321275 - Life Annuities

S.245 potentially could apply to a back-to-back insurance strategy which provided for the purchase of a term life insurance policy providing a...

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24 July 1992 T.I. 921605 (C.T.O. "Living Benefits and Capital Dividend Account")

An advance payment of part of the sum assured under a policy where the life expectancy of the insured is less than two years due to a medically...

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23 March 1992 T.I. (Tax Window, No. 18, p. 22, ¶1824)

Where two personal holding companies each own 50% of the shares of Opco and each holding company is the owner of an insurance policy on the life...

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3 January 1992 Memorandum (Tax Window, No. 15, p. 8, ¶1682)

The capital dividend account with respect to a dividend paid part-way through the year was not reduced by the bankruptcy prior to that time of a...

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12 November 1991 T.I. (Tax Window, No. 13, p. 4, ¶1592)

Where an individual owns a life insurance policy and pays all the premiums, but a corporation is the beneficiary, the corporation will add the...

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31 May 1990 T.I. (October 1990 Access Letter, ¶1468)

The amount of 1% of a price paid to the vendor of a winning lottery ticket under Lotto-Québec would not be included in the vendor corporation's...

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31 January 1990 T.I. (June 1990 Access Letter, ¶1266)

In computing the capital dividend account of a corporation following the winding-up of the wholly-owned subsidiary, separate calculations must be...

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9 November 89 T.I. (April 90 Access Letter, ¶1176)

A business investment loss is a capital loss, and therefore will reduce a taxpayer's capital dividend account.

89 C.R. - Q.49

A prior year's capital gains reserve is considered to come into the capital dividend account calculation at the beginning of the year.

Articles

Strain, "Estate Planning: Life-Insured Share Redemption Provides Advantages over Outright Buy Back", Taxation of Executive Compensation and Retirement, September 1993, p. 811.

Paragraph (a)

See Also

Gladwin Realty Corporation v. The Queen, 2019 TCC 62, aff'd 2020 FCA 142

The taxpayer, a private real estate corporation, rolled a property under s. 97(2) into a newly-formed LP, with the LP then distributing to the...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) using the CDA and negative ACB rules to generate “over-integration” was abusive 594
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.1) purpose of s. 40(3.1) is to trigger gain on extraction of excess funds by passive partners 330
Tax Topics - Income Tax Act - Section 123.3 no CRA challenge to continuance to BVI to avoid s. 123.3 tax 96

Administrative Policy

22 January 2019 External T.I. 2019-0791631E5 - Calculation of Capital Dividend Account

In Year 1, a corporation paid a capital dividend based on a capital gain realized in that year. Would the realization by it of a capital loss in...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 184 - Subsection 184(2) subsequent capital loss did not generate excessive dividend 57

21 November 2017 CTF Roundtable Q. 4, 2017-0724051C6 - Timing of deemed gain under 55(2)

S. 55(2)(c) deems most dividends that did not arise on a share redemption and to which s. 55(2) applies to be gains “for the year,” without...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) - Paragraph 55(2)(c) immediate CDA addition for s. 55(2)(c) dividend 173

S3-F2-C1 - Capital Dividends

S. 55(2) gains

1.31.1 An amount deemed to be a gain under paragraph 55(2)(c) is deemed to be realized on a disposition of a capital property at...

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17 August 2016 Internal T.I. 2016-0639251I7 - Capital Dividend Account and 149(1)(n)

Can an entity exempt under s. 149(1)(n) have and use a capital dividend account (“CDA”)? The Directorate responded:

[A] s. 149(1)(n) entity...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1.2) deemed 149(10) gain does not add to CDA before it disapppears under 89(1.2) 169
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(n) can have a CDA while exempt 92

29 November 2016 CTF Roundtable Q. 4, 2016-0671491C6 - 55(2) and Part IV Tax

Taking its RDTOH of $383,333 into account, Opco pays a taxable dividend of $1,000,000 to Holdco (its wholly-owning parent also with a calendar...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) repeal of the s. 55(2) exemption, for dividends for which the Part IV tax is refunded on on-payment to an individual shareholder, busts integration 93

5 October 2012 APFF Roundtable Q. 8, 2012-0454161C6 F - Computation of CDA and Acquisition of Control

Where Mr. A, who owns 50% of the shares of a CCPC ("Holdco") having net capital losses of $200,000, purchases the other 50% shareholding of Mr. B,...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) purchase of shares of cash-rich company could be part of abusive surplus strip 76

28 March 2012 External T.I. 2011-0412541E5 F - Compte de dividendes en capital

A deemed capital gain arising under s. 80(12) will result in an addition to the corporation's capital dividend account under (a)(i)(A) (with the...

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27 June 2011 External T.I. 2009-0350501E5 F - Gains et pertes sur change étranger

A Canadian corporation acquires capital property at a cost of U.S.$90,000 and pays the purchase price 30 days later after the exchange rate has...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) s. 39(2) gain or loss on USD-denominated purchase arises between acquisition and payment date 221

17 September 2009 External T.I. 2009-0310251E5 F - Interaction between sections 89 and 55

S. 55(2) applied to the redemption by Opco of shares held by Holdco, given that the resulting s. 84(3) deemed dividend exceeded the safe income on...

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Subparagraph (a)(i)

Administrative Policy

27 November 2018 CTF Roundtable Q. 2, 2018-0780071C6 - Impact of 55(2) deeming rules

CRA will ensure that the taxpayer will not be penalized in the capital dividend account calculation where a stock dividend or paid-up capital...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 52 - Subsection 52(2) property dividended has cost equal to FMV where subject to s. 55(2) 104
Tax Topics - Income Tax Act - Section 52 - Subsection 52(3) cost under s. 52(3) for stock dividend amount to which s. 55(2) applied 69
Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(b) - Subparagraph 53(1)(b)(ii) no basis reduction for s. 84(1) dividend to which s. 55(2) applied 161
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3) - Paragraph 112(3)(b) - Subparagraph 112(3)(b)(i) stop-loss rule does not apply to the extent of the application of s. 55(2) 92

Clause (a)(i)(C)

Administrative Policy

S3-F2-C1 - Capital Dividends

Exclusion for gains of CCPC that accrued under exempt or NR-controlled status

1.37 For dispositions occurring after November 26, 1987, another...

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Clause (a)(i)A)

Administrative Policy

21 June 2017 External T.I. 2016-0678361E5 F - Capital Dividend Account

ACo and BCo is each a private corporation holding a 49.99% limited partnership interest in Holdings LP and having a calendar year end. On December...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(f) a negative ACB gain retains its character when allocated 85

16 November 2011 External T.I. 2011-0423861E5 F - paragraph 53(1)b)

Holdco, whose common shares of Opco have a nominal adjusted cost base ("ACB") and paid-up capital ("PUC"), a fair market value ("FMV") of $2...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(b) example of application of s. 53(1)(b) on dirty s. 85 exchange of common shares with partial SIOH for high PUC/ACB prefs and low PUC/ACB common shares 295

14 October 2011 External T.I. 2011-0421141E5 F - Computation of capital dividend account

A dividend computed under s. 84(1) is deemed not to be a dividend by s. 55(2)(a), and the share is disposed of at a gain. Is the addition of...

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7 October 2011 APFF Roundtable Q. 29, 2011-0412131C6 F - Subsection 55(2) and Capital Dividend Account

If in the year prior to the sale of Opco by Holdco, Opco pays a dividend to Holdco which is subject to s. 55(2), s. 55(2)(b) generally would apply...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) - Paragraph 55(2)(c) dividend paid in contemplation of subsequent arm’s length share sale is part of proceeds of that sale 207

Articles

Rick McLean, Jeff Oldewening, Jonas Lau, "Capital Gains Stripping and Surplus Stripping", 2017 Annual CTF Conference draft paper

Use of high-PUC, low ACB shares to create CDA (pp. 4-5)

[T]he new rules denied the creation of ACB in shares issued on a stock dividend or...

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Subparagraph (a)(ii)

Administrative Policy

23 July 2007 Internal T.I. 2007-0234691I7 F - Foreign Exchange Gains/Losses and CDA

CRA indicated that since a capital loss was not recognized under s. 39(2) until the end of the taxation year, the deduction under the CDA account...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) FX losses sustained on the maturity of commercial paper deemed under s. 39(2) to be realized at year end, so that CDA deduction deferred until then 187

28 September 2006 Internal T.I. 2006-0202901I7 F - Subsection 80(4) - Impact on the CDA

In finding that the application of a net capital loss under s. 80(4) does not reduce the deduction for the non-taxable portion of realized capital...

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Paragraph (b)

Administrative Policy

30 August 2017 External T.I. 2017-0718311E5 F - Capital dividend account

CRA indicated that a late but valid capital dividend election retroactively validates the dividend so that the recipient of the dividend thereby...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 83 - Subsection 83(3) a late s. 83(3) election causes a retroactive increase to the CDA of the corporate recipient of the dividend 213

S3-F2-C1 - Capital Dividends

Effect of excessive 83(2) election

1.47 ... [E]ven an excessive dividend is included in the recipient corporation’s CDA. However, if the payor...

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25 August 2011 External T.I. 2011-0417511E5 F - CDA and Excessive dividend

A private corporation elected under s. 83(2) on a dividend amount in excess of its capital dividend account (CDA), and it paid Part III tax under...

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14 June 2007 Internal T.I. 2007-0229311I7 F - Capital Dividend Account

Subco declared a dividend payable to its parent (Parentco) which, in turn, declared a corresponding dividend to its individual shareholder, with a...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt making accounting entries does not constitute payment of a dividend 130
Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) invalid payment of capital dividend (because no payment) was subject to Pt. III tax (given valid s. 83(2) election) for which no s. 184(3) election could be made as no payment 135
Tax Topics - General Concepts - Effective Date a declared dividend cannot be revoked 158

Paragraph (c.1)

See Also

Non Corp Holdings Corp. v. Canada (Attorney General), 2016 ONSC 2737

Following the sale of a business giving rise to a “capital gain” (likely, goodwill proceeds), the dividend of the targeted capital dividend...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Rectification & Rescission date of capital dividend declaration rectified to eliminate Part III tax 192

Paragraph (c.2)

Administrative Policy

13 September 2004 Internal T.I. 2004-0080041I7 F - Compte de dividendes en capital

A corporation which has a 50% interest in a general partnership (the "SENC") which sold a milk quota, was required to include an amount in...

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Paragraph (d)

Administrative Policy

8 July 2020 CALU Roundtable Q. 2, 2020-0842141C6 - Return of premiums on death & CDA

A private corporation is the owner and beneficiary of an exempt life insurance policy (with an adjusted cost basis of $90,000) on the life of a...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 148 - Subsection 148(9) - Disposition - Paragraph (j) a refund of premiums on death under a life insurance policy does not entail its disposition 122

2016 Ruling 2015-0624611R3 - Capital Dividend Account

Background

A life insurance policy (the “Policy”) was issued to B, and subsequently transferred by him to Canco 1, so that Canco 1 became the...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1) transactions to rectify an overlooked life insurance policy of an amalgamated target 154

S3-F2-C1 - Capital Dividends

Reductions under (d)(v) to CDA addition on death

1.60.3 The third and fourth amounts, described in subparagraphs (d)(v) and (vi) of the definition...

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19 November 2009 External T.I. 2007-0257251E5 F - Assurance-vie

For the purpose of calculating its capital dividend account, is a corporation that is a beneficiary of a life insurance policy required to take...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 148 - Subsection 148(9) - Disposition - Paragraph (d) disposition by operation of law if there is a new contract 162
Tax Topics - Income Tax Act - Section 148 - Subsection 148(10) - Paragraph 148(10)(d) designation of a different beneficiary does not entail a disposition 132
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) s. 15(1) benefit where sub is policyholder and premium payer and parent is beneficiary – but not for reverse 223

8 October 2004 APFF Roundtable Q. 5, 2004-0089141C6 F - Compte de dividendes en capital

A corporate owner and beneficiary of a life insurance policy receives a death benefit in the amount of $850,000, less a policy loan of $150,000...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 148 - Subsection 148(9) - Adjusted Cost Basis - Element E ACB of policy immediately before death reduced by policy loan 135

Subparagraph (d)(ii)

Administrative Policy

8 July 2020 CALU Roundtable Q. 3, 2020-0842151C6 - Insurance Proceeds & CDA

A universal life (UL) policy (referred to as “face amount plus fund value”) purchased by Opco as an exempt policy upon the life of its...

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5 October 2012 Roundtable, 2012-0453231C6 F - Creditor's Group Life Insurance and CDA

Under an individual policy for loan insurance purchased by a borrowing corporation, the death benefit on the insured’s death is applied to repay...

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7 October 2011 Roundtable, 2011-0407291C6 F - Group Life Insurance Policy

Professionals practising through a professional corporation hold a group term life insurance certificate as an insured, for which the policyholder...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) s. 15(1) could possibly apply where a professional corporation pays the premiums, and is designate the beneficiary, of a policy in name of professional 148

4 July 2011 External T.I. 2011-0401991E5 F - CDA and life insurance proceeds

Innovative Installation found that proceeds of an insurance policy (whose premiums had been paid by a corporation (Innovative)) that the insurance...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt Insurance proceeds received by borrower where applied to repay its loan 92

Subparagraph (d)(iii)

See Also

Rogers Enterprises (2015) Inc. v. The Queen, 2020 TCC 92

Sommerfeldt J. found that there was no abuse under s. 245(4) where, following the death of the insured in 2008, a corporate beneficiary’s...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(1) - Tax Benefit no tax benefit where alleged excessive CDA addition was not distributed to individual shareholders 498
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) taking full credit to the CDA for insurance proceeds received, notwithstanding a positive ACB of the policyholder, reflected the policy of the CDA text 415

Administrative Policy

8 May 2018 CALU Roundtable Q. 2, 2018-0745811C6 - CDA credit - joint ownership

Opco, which is owned 50/50 by the respective wholly-owned holdcos of Messrs. A and B (Holdco A and Holdco B) jointly owns with Holdco A (and...

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18 May 2017 Roundtable, 2017-0690311C6 - CLHIA 2017 - Q1 CDA

Corporation A is the sole owner and premium payor for a life insurance policy with a death benefit of $1 million on the life of Mr. A. Corporation...

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Finance

6 October 2017 APFF Financial Strategies and Instruments Roundtable, Q.7

In 2017-0690311C6, Corporation A was the sole owner and premium payor for a life insurance policy with a death benefit of $1 million on the life...

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Paragraph (g)

Administrative Policy

14 May 2013 External T.I. 2012-0469591E5 F - Capital dividend received by a trust and CDA

A Canadian-controlled private corporation paid a capital dividend to its sole shareholder, a trust, in 20x1. The beneficiaries of the trust were...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(20) no recognition of capital dividend by corporate beneficiary where received by trust in Year 1 and distributed in Year 2 127

3 May 2010 External T.I. 2010-0358471E5 F - Capital dividend account - beneficiary of a trust

A trust received a capital dividend form a corporation and distributed it in the same year to a corporate beneficiary, and made a designation...

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Excessive Eligible Dividend Designation

Administrative Policy

11 October 2013 APFF Roundtable, 2013-0495781C6 F - GRIP Exceeds Safe Income

Targetco is a CCPC owned by Sellco (also a CCPC) and has a GRIP account of $2.6M. However, the safe income on hand of Sellco in respect of the...

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General Rate Income Pool

Administrative Policy

20 February 2014 External T.I. 2013-0480051E5 F - Eligible dividend and safe income

Holdco, which is unrelated to Opco or any other shareholder, holds 30% of both the Class A common and Class B preferred shares of Opco. Its Class...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 89 - Subsection 89(14) eligible dividend designation treated as applying only to safe income portion of dividend 261

16 April 2013 External T.I. 2013-0477771E5 F - Calculation of the general rate income pool

A Canadian-resident corporation (Corporation A), which presents performances of an artist (A) who is its sole shareholder, became a...

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28 November 2010 CTF Roundtable Q. 5, 2010-0385991C6 - 2010 CTF - Q. 5 - 55(2) and GRIP

Where a CCPC pays an eligible dividend across a single class of shares owned 50/50 by a Canadian resident individual and a Canadian resident CCPC,...

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Income Tax Technical News, No. 41, 23 December 2009

Where the full amount of the dividend paid by a CCPC is designated as an eligible dividend but a portion of the dividend is received by a...

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Articles

John Granelli, "Getting a Handle on GRIP", Tax Topics (Wolters Kluwer), No. 2252, May 7, 2015, p. 1

Addition to general rate income pool differs from actual after-tax income subject to full rates (p.1)

[T]he following table compares the GRIP...

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Jennifer Smith, Trent Henry, "De-tax the Dividends", CA Magazine, December 2006, p. 40.

Element A

Element G

Administrative Policy

23 December 2008 External T.I. 2008-0271401E5 F - GRIP/CRTG

Bco receives, from its wholly-owned subsidiary (Aco), two taxable dividends (the first, designated as an eligible dividend of $3.5 million, for...

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Element B

Administrative Policy

17 November 2022 External T.I. 2021-0919001E5 F - Eligible Dividends and Non-Capital Loss Carry-Back

Opco incurred a non-capital loss (an "NCL") in each of its 2019 and 2020 taxation years (the 2019 and 2020 Loss Years), and carried back the 2019...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(i) CRA discretion re accepting adjustment to losses carried back provided that the amendment request is made within the s. 152(4)(b)(i) period and loss year not statute-barred 322
Tax Topics - Income Tax Act - Section 152 - Subsection 152(6) - Paragraph 152(6)(c) s. 152(6)(c) permitted amending carryback request, if made within s. 152(6)(c) deadline and normal reassessment period, and implicitly authorized consequential Part III.1 reassessment 278
Tax Topics - Income Tax Act - Section 152 - Subsection 152(3) s. 152(3) (and, consequentially, s. 185.2(2)) requires filing of amended return to reflect missing excessive dividend 173
Tax Topics - Income Tax Act - Section 185.1 - Subsection 185.1(2) s. 185.1(2) election can be made before the incremental Part III.1 assessment that is being avoided 181

Paid-Up Capital

See Also

Insight Venture Associates III, LLC v. SLM Soft Inc. (2003), 67 O.R. (3d) 115 (S.C.J.)

With respect to s. 23 of the Ontario Business Corporations Act … the effect of the conversion [of] a debt security into shares releases the...

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Administrative Policy

2015 Ruling 2015-0584151R3 - Conversion of Contributed Surplus to PUC

A non-resident corporation governed by a non-resident jurisdiction’s corporate law had issued share capital based only on the “nominal...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 84 - Subsection 84(1) cross-border inbound continuance of corporation with different labels for capital and surplus followed by conversion of capital surplus to stated capital 245

20 March 2015 External T.I. 2014-0535971E5 - Meaning of "paid-up capital" in subsection 90(3)

CRA stated that "to the extent [the applicable State corporate] laws and constating documents do not provide for stated capital akin to that which...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 90 - Subsection 90(3) LLC with partner capital-account style LLC Agreement does not have PUC 251

8 October 2010 APFF Roundtable, 2010-0373301C6 F - Classes of shares with identical characteristics

Under s. 49 of the new Québec Business Corporations Act, it is possible to create classes and series of shares with exactly the same rights and...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 47 - Subsection 47(1) shares of identical but separate QBCA classes are identical properties unless their PUC rights differ 184

October 1992 Central Region Rulings Directorate Tax Seminar, Q. 2 (C.T.O. Doc. No. 142 "Paid-Up Capital Foreign Currency Shares"; May 1993 Access Letter, p. 230)

Because where a transaction is on capital account, the Canadian dollar value of the transaction is calculated at the exchange rate prevailing at...

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88 C.R. - Q.7

Where the stated capital in respect of a class of shares is maintained in a foreign currency, the paid-up capital in respect of shares of the...

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88 C.R. - Q.35

Where subsequent to a transaction to which s. 85(2.1) applied, a corporation reduced its stated capital for corporate purposes, then the paid-up...

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IT-463R2 "Paid-up Capital" 8 September 1995

2

Since subparagraph (b)(iii) of the definition of "paid-up capital" provides that the amount of the paid-up capital of a class of shares is...

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Articles

Marshall Haughey, "Issuing Shares for a Promissory Note", 24 Can. Current Tax, May 2014, p. 85.

Prohibition by jurisdiction (pp. 85-6)

[I]n Saskatchewan, Manitoba, New Brunswick, and Newfoundland…a promissory note cannot be given as...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Illegality 664

Vern Krishna, "Equity Financing: Corporate Aspects", 19 Canadian Current Tax, December 2008, p. 21.

Stephen Fyfe, Craig Webster, "Current Mutual Fund Developments and Products", 2000 Conference Report, c. 21: Discussion (at pp. 21:40-42) of paid-up capital of mutual fund corporation including:

A number of years ago, advance income tax rulings were sought from the CCRA with respect to whether a mutual fund corporation has paid-up capital...

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Christopher J. Steeves, "Shares Issued for Foreign Currency and the Potential for Deemed Dividends", Corporate Structures and Groups, Vol. V, No. 4, 1999, p. 280: Discussion of the time at which the paid-up capital of a share issued in a foreign currency is translated into Canadian dollars.

Paragraph (a)

Administrative Policy

8 October 2010 Roundtable, 2010-0373221C6 F - Paid-up capital

CRA indicated that it has concluded in some cases that using PUC averaging to shift PUC to individual shareholders engages GAAR, and “is...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) - Paragraph 245(3)(a) transaction can be an avoidance transaction even where the series is motivated by business reasons 142
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) CRA has concluded in some cases that using PUC averaging to shift PUC to individual shareholders engages GAAR 283

Private Corporation

Administrative Policy

80 C.R. - Q.25

The status of a private corporation does not change on the acquisition of its control by a public corporation acting as executor or trustee as a...

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Public Corporation

Administrative Policy

2021 Ruling 2020-0852951R3 - Public Spin-Off Butterfly

Parent, a listed corporation with a specified shareholder (and perhaps with two classes of multiple voting and single voting shares), wishes to...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3.02) spin-off of grandchild of public corporation to direct Newco subsidiary followed by spin-off to public shareholders 562
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.4) stock options replaced by stock options with lower exercise price on shares of shrunken post-spin-off corp 131
Tax Topics - Income Tax Act - Section 85.1 - Subsection 85.1(1) 85.1 applicable on exchange by Pubco shareholders for shares of spin-off sub 142

2015 Ruling 2015-0577141R3 - Election to cease to be a public corporation

Proposed transactions

Bidco, which is a wholly-owned Canadian-resident subsidiary of Holdco2, which is a non-resident wholly-owned subsidiary of a...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(ii) closely-held Amalco can elect following the delisting of shares of a public predecessor 81

27 June 2014 External T.I. 2014-0527341E5 F - Sociétés publiques aux fins de SPCC

Are federal Crown corporations not prescribed in Regs. 6700 and 7100 considered public corporations for purposes of the definition of...

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21 September 2012 External T.I. 2012-0455231E5 - Section 89(1) - defn of a "public corporation"

A wholly-owned subsidiary (Subco) of a public corporation (Pubco) that has never elected to be a public corporation itself, will not itself be a...

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26 September 1996 External T.I. 9627665 - ELECTION TO CRYSTALIZE GAINS ON GOING PUBLIC

"The Department takes the view that shares that are conditionally listed will not be listed for purposes of the Act until the time at which all of...

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Forms

T2067 "Election not to be a Public Corporation"

At the time of this election, for each class of shares referred to in 2 above:

a) insiders of the...

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Paragraph (a)

Articles

Joint Committee, "Definition of 'Public Corporation'", 4 March 2019 Joint Committee Submission

  • Acquisitionco, a private company, acquires all the shares of Targetco, a public corporation, and immediately amalgamated with it.
  • 2017-0723771C6...

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Words and Phrases
listed
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(ii) Targetco now held 100% by Acquisitionco, and with a formal delisting imminent, is still listed, so that Amalco will be tainted under s. 87(2)(ii) 289

Paragraph (c)

Subparagraph (c)(i)

Administrative Policy

2018 Ruling 2018-0752531R3 - Public corporation election 89(1)(c)(i)

Pubco was a corporation that was now closely held but nonetheless was deemed to be a public corporation under s. 87(2)(ii) given that it resulted...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 4800 - Subsection 4800(2) - Paragraph 4800(2)(a) Reg. 4800(2)(a)(i) considered to be satisfied when, in fact, none of the shares held by the insiders had ever been listed since the Pubco’s formation by amalgamation 340

21 November 2017 CTF Roundtable Q. 12, 2017-0723771C6 - Election not to be a public corporation

Where a private corporation (Acquisitionco) acquires all of the shares of a publicly-listed target (Targetco), the designated stock exchange often...

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Subsection 89(1.2)

Administrative Policy

17 August 2016 Internal T.I. 2016-0639251I7 - Capital Dividend Account and 149(1)(n)

CRA indicated that one-half of the capital gains generated by a private corporation that is exempt as a low-rental housing corporation under s....

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Subsection 89(7) - GRIP addition for 2006

Administrative Policy

7 January 2008 External T.I. 2007-0227071E5 F - GRIP Addition for 2006

A CCPC (Aco) received (as its only income during the years 2001 to 2005) taxable dividends of $1,200,000 and $300,000 in 2003 and 2005 from its...

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21 March 2013 External T.I. 2013-0476901E5 F - GRIP addition under 89(7)

Situation 1

Corporation A received a taxable dividend of $1M from its wholly-owned subsidiary (Corporation P) on January 1, 2001, then sold all...

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24 January 2011 Internal T.I. 2010-0390111I7 F - GRIP Computation and Taxable Income for M&P Credit

Corporation C realized a business loss in 2006, which was carried back to 2003. Should Corporation C’s income for purposes of the M&P credit...

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26 May 2008 External T.I. 2007-0263001E5 F - 2006 GRIP Addition

3rd Situation

ABCco and DEFco are connected CCPCs with calendar year ends. During each of 2001 to 2005, ABCco had full rate taxable income...

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20 February 2008 External T.I. 2007-0250841E5 F - GRIP addition for 2006

Holdco 2 wholly-owns Opco 2. A(a) and (b) of s. 89(7) for Opco 2 are nil for the taxation year ending in 2001, while they aggregate $100,000 for...

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7 January 2008 External T.I. 2007-0225481E5 F - GRIP Addition for 2006

A CCPC (Holdco) received (as its only income during the years 2001 to 2005) a taxable dividend of $400,000 in 2001 from its wholly-owned...

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Element A

Administrative Policy

19 December 2012 External T.I. 2012-0468511E5 F - GRIP addition for 2006

Corporation A, which held 40% of the shares of Corporation B (also a Canadian-controlled private corporation), received a (s. 112(1) deductible)...

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Paragraph (c)

Administrative Policy

8 December 2008 External T.I. 2008-0264691E5 F - GRIP Addition/ Majoration CRTG

Subco earned $160,000 of full rate taxable income in each of the 2001 to 2005 years and paid to its wholly-owning parent (Parentco) in each of...

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Subsection 89(8) - LRIP addition — ceasing to be CCPC

Administrative Policy

19 January 2011 External T.I. 2010-0390831E5 - Compute LRIP - corporation becomes non-CCPC

A future income tax asset is not "property" within the meaning of variable A of s. 89(8) as it does not represent a "right" - unless the...

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28 August 2009 External T.I. 2009-0325881E5 F - Application of Subsection 89(8)

A public corporation (“Pubco”) acquires all shares of "Target" (theretofore, a Canadian-controlled private corporation with a calendar year...

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Subsection 89(11) - Election: non-CCPC

Administrative Policy

May 2013 ICAA Roundtable, Q. 24 (reported in April 2014 Member Advisory)

[A] subsection 89(11) election does not prevent an otherwise qualifying CCPC from receiving the enhanced federal SR&ED rate of 35%. The election...

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20 October 2010 External T.I. 2010-0377251E5 F - Canadian Controlled Private Corporation

On May 15, 20-A, Corporation A, a Canadian-controlled private corporation (a "CCPC"), acquired all the shares of Corporation B, a public...

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Articles

Manon Thivierge, "Income Tax Due-Diligence Considerations in Mergers and Acquisitions", 2015 Conference Report (Canadian Tax Foundation), 18:1-29

Deemed year-end on ceasing to be a CCPC (p. 18:16)

[U]nder subsection 249(3.1), when a corporation either becomes or ceases to be a CCPC...

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Subsection 89(14) - Dividend designation

Administrative Policy

7 October 2020 APFF Roundtable Q. 11, 2020-0852231C6 F - Designation under subsection 89(14)

At 2017-0709021C6 F, CRA accepted that the amount of the dividend paid out of the capital dividend account on a winding-up need not be...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 185.1 - Subsection 185.1(2) an eligible dividend designation must state a dollar amount, and GRIP variances are addressable under s. 185.1(2) 246

3 December 2019 CTF Roundtable Q. 16, 2019-0824471C6 - Eligible Dividend Designation

CRA considers that a public corporation can make an eligible dividend designation by posting a statement on its website that “all dividends are...

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18 December 2017 External T.I. 2017-0720731E5 F - Eligible dividend designation

CRA stated:

[T]he sending of an e-mail, with an acknowledgment of receipt, would meet the conditions for the designation of a dividend as an...

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Words and Phrases
at that time in writing

20 November 2015 External T.I. 2014-0539951E5 - Foreign Currency Denominated Dividends

Citing Banner Pharmacaps, CRA considered that a dividend does not “arise” for s. 261(2) purposes until it is paid (rather than declared) so...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) U.S.-dollar dividends are translated on a cash rather than accrual basis 279

20 February 2014 External T.I. 2013-0480051E5 F - Eligible dividend and safe income

Holdco, which is unrelated to Opco or any other shareholder, holds 30% of both the Class A common and Class B preferred shares of Opco. Its Class...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - General Rate Income Pool full amount of designated dividend reduces payor's GRIP even though recipient's GRIP increased only by safe income portion 272

6 January 2014 External T.I. 2013-0512041E5 F - Dividend Designation under subsection 89(14)

After noting that an alleviatory amendment was made to s. 89(14) effective for dividends paid after March 28, 2012 to address the problem that...

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Words and Phrases
portion

5 October 2012 APFF Roundtable, 2012-0454091C6 F - GRIP and deemed dividend pursuant to 84.1(1)(b)

Mr and Mrs X hold all the shares of Corporation A and B, respectively (both private corporations). Mr X sells all his shares of Corporation A to...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1) - Paragraph 84.1(1)(b) unnecessary in s. 89(14) for s. 84.1 to have deemed dividend to be paid on shares 233

8 October 2010 APFF Roundtable Q. 11, 2010-0373281C6 F - Redemption of shares and eligible dividend

CRA's position that, in order to be valid, an eligible dividend designation must stipulate the amount of the dividend, only applies to regular...

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9 April 2010 External T.I. 2010-0361381E5 F - Eligible Dividend

The "general rate income pool" of Opco (a Canadian-controlled private corporation) at the end of its 2009 taxation year was $100,000 (and exceeded...

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21 January 2008 External T.I. 2007-0227531E5 F - GRIP / GRIP Addition for 2006

Where, in 2006, Bco's GRIP is $1.3 M and, pursuant to s. 84(3), Bco is deemed to have paid a dividend of approximately $1M to Cco and Dco...

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Public Corporations

For ... public corporations, ... notification has been made if, before or at the time the dividends are paid, a designation is made stating that...

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All Other Corporations

For 2007 and subsequent taxation years, for all corporations other than public corporations, the notification requirements of proposed subsection...

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2 May 2008 External T.I. 2007-0249941E5 - Dividend designation

An eligible dividend designation by a CCPC must specify an amount.

Articles

Hiren Shah, Manu Kakka, "Coming to Grips with Quebec's Lack of GRIP", Tax for the Owner-Manager, Vol. 17, No. 2, April 2017, p.6

Quebec CCPC not eligible for Quebec SBD nonetheless pays ineligible dividends (p. 7)

[C]onsider, for example, a Quebec-resident CCPC that has...

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Subsection 89(14.1) - Late designation

Administrative Policy

12 March 2015 External T.I. 2014-0541991E5 - Objection – Eligible Dividend Designation

A Canadian-controlled private corporation ("Canco") declared and paid out a dividend at a time it had an insufficient GRIP balance to make an...

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11 October 2013 APFF Roundtable, 2013-0495771C6 F - Late eligible dividend designation

Q.14(a)(1)

Essentially the same question and response as immediately below for 2013-0475261E5 respecting an excessive capital dividend, so that...

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2 August 2013 External T.I. 2013-0475261E5 - Eligible Dividend - Late Filing 89(14.1) & 184(3)

A Canadian-controlled private corporation makes a s. 184(3) election to deem the excess portion of a capital dividend to be a separate taxable...

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29 May 2012 CTF Prairie Tax Conference 2012 Roundtable, 2012-0445661C6 - Late Eligible Dividend Designation

The Minister will generally accept a late designation where, for example:

  1. there have been tax consequences not intended by the taxpayers and...

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