Issue 451, March 2019

In a November 27, 2018 Technical Interpretation (2018-0780061C6, Ton-That, Marc), CRA announced that they have finalized their study on the allocation of safe income to discretionary dividend shares. They confirmed that they stand by all positions expressed in the matter of discretionary dividend shares since November 2015 (for example, see comments made by CRA discussed in VTN 415(9)).

a ruling if greater certainty for a specific dividend is desired

CRA also stated that they will no longer provide views on this issue in Technical Interpretations or round table responses, as they are concerned that a view based on a brief summary of a hypothetical situation may be misleading. It is their position that a determination of safe income attributable to shares of a corporation can only be made after reviewing all facts and circumstances which is more appropriately addressed in a ruling request. In other words, CRA has indicated that they will not provide any general guidance on the manner in which safe income attributable to discretionary dividend shares is determined.

continued uncertainty on valuation of discretionary dividend shares

CRA finally acknowledged that the use of discretionary dividend shares may raise additional technical issues. For example, it noted that there is uncertainty in establishing the fair market value of these shares in the context of a butterfly distribution (Subsection 55(3)(a)).

Editors’ comment
The valuation of discretionary dividend shares is a question of fact and creates uncertainty. However, if a discretionary dividend share has a cost base equal to the fair market value, and therefore no accrued gain, no safe income could reasonably be considered to contribute to the capital gain on such shares (see VTN 415(9)).

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