Words and Phrases - "significant"
17 November 2015 Roundtable, 2015-0613821C6 - TEI question on section 55
TEI members remain concerned that, because all dividends result in a reduction of the fair-market value of shares held by the dividend payor and increase the cost of properties held by the dividend recipient, the CRA may try to reassess ordinary course dividends on the basis that a purpose of every dividend is a tainted purpose. Comments? CRA responded:
The "significant" aspect could be measured in terms of an absolute dollar amount or on a percentage basis.
…[A] dividend that is directly or indirectly instrumental in the creation of an accrued loss on any share that may be used, or has the potential to be used, to shelter a gain on some other property provides an indication that the FMV reduction purpose exists (for example, one might consider transferring a property with an accrued income or capital gain to the corporation that issued shares that have an accrued loss). Also, the use or possibility of using an increased cost amount of properties to shelter a gain is an indication that the purpose of the dividend is to increase cost.
Where a dividend is paid pursuant to a well-established policy of paying regular dividends and the amount of the dividend does not exceed the amount that one would normally expect to receive as a reasonable dividend income return on equity on a comparable listed share issued by a comparable payer corporation in the same industry, the CRA would consider that the purpose of the payment of such dividend is not described in proposed paragraph 55(2.1)(b).
3 December 2015 External T.I. 2015-0593941E5 F - Allocation of the safe income on hand
CRA declined to express a view as to whether an $8,000 reduction in an accrued capital gain of $120,000 was significant. A $50,000 dividend received by two Holdcos from Opco (with no indication of the total FMV of all the shares) would be considered to be significant.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c) | flexible allocation of SIOH where discretionary common shares | 1317 |
| Tax Topics - General Concepts - Fair Market Value - Shares | FMV of discretionary share increased at moment of dividend declaration to exclusion of other discretionary shares | 94 |
2 June 2015 Ruling 169081
The “Organization,” which is a "municipality" under para. (b) of “municipality” in s. 123(1) and, therefore, a "public sector body," charges membership fees to each member. Before finding that, as the members receive significant direct benefits by reason of their membership which exceed the allowable benefits listed in ss. 17(a) to (f), so that the Organization's supplies of memberships are not exempted, CRA referenced s. 17(e) as exempting “the right to receive a discount for property or services sold by the organization when the total value of all the discounts is insignificant (less than 30%) in relation to the membership fee,” and stated:
For example, a $100 membership fee provides members with a $5 discount for each of 10 admissions to the theatre ($50 discount). This membership would be taxable since the total value of the discounts is significant (30% or more) in relation to the membership fee whether or not the discounts are used.
CRA also stated:
A "benefit" is the right to any property or service of value regardless of the extent to which the right is actually exercised by individual members. All possible benefits accruing to members must be taken into consideration in determining the tax status of a membership.
3 November 1997 External T.I. 9725615 - INCREASE IN INTEREST
"In circumstances where no person has acquired any shares of the corporation in question, it is our view that for the purposes of determining whether there has been 'a significant increase ... in the total direct interest' of an unrelated person in the corporation for purposes of ... subparagraph 55(3)(a)(ii) and (iv) [sic] of the Act that one must compare the value of a person's interest in the corporation as a percentage of the value of all interests in the corporation immediately before the share redemption to the value of that person's interest in the corporation as a percentage of the value of all interests in the corporation immediately after the share redemption." Accordingly, in a situation where a substantial preferred share interest of one shareholder was redeemed, there was a significant increase in the total direct interests of the other unrelated shareholders of the corporation.
Canada v. VIH Logging Ltd., 2005 DTC 5095, 2005 FCA 36
Cash dividends paid by a corporation ("Old VIH") to its parent (the taxpayer) in February 1993 came out of safe income of Old VIH given that the computation of Old VIH's safe income included significant income that it had earned after its last fiscal year end (March 31, 1992) and before the date of payment of the dividends. Sharlow J.A. stated (at p. 5101) that
"It does no violence to the language of subsection 55(2) to interpret the phrase 'before the commencement of the series of transactions' to mean 'immediately before the commencement of the series of transactions', rather than 'as of the end of the fiscal year ending before the commencement of the series of transactions', as the Crown contends."
In addition, it was open to the trial judge (Woods J, as she then was) to find that a stock dividend paid shortly after the payment of the cash dividends, and which reduced the capital gain on a subsequent sale of the shares Old VIH by approximately $45,000, did not result in a significant reduction of the capital gain realized on such sale in the context of transactions which involved dividends (preponderantly, cash dividends) totaling over $1.7 million.