2019-0824521C6 2019 CTF – Q4 – 84.1(1)(a) v/s 129(1)(a)

Principal Issues: In technical interpretation 2002-0128955, the CRA took the position that a corporation is not entitled to a dividend refund under paragraph 129(1)(a) with respect to a dividend it is deemed to have paid under paragraph 84.1(1)b). Whether such position still represents the CRA's position in the situation described herein.

Position: No, technical interpretation 2002-0128955 no longer represents CRA’s position.

Reasons: The granting of a dividend refund to a corporation that is deemed to have paid a dividend under paragraph 84.1(1)(b) in a similar situation achieves an outcome that is more in accordance with the integration principle.

Author: Lafrenière, Jean
Section: 84.1(1)(b), 129(1)(b)

2019 CTF Annual Conference

CRA Roundtable

Question 4: Interaction Between Paragraphs 84.1(1)(b) and 129(1)(a)

Consider the following scenario:

Mr. A is married to Mrs. A;

Both individuals are resident in Canada;

Mr. A owns all of the issued and outstanding shares of the capital stock of Opco 1;

Mr. A and Mrs. A each own 50 % of the issued and outstanding shares of the capital stock of Opco 2;

Opco 1 and Opco 2 are both private corporations as that expression is defined in subsection 89(1); and

Mr. A transfers his shares of the capital stock of Opco 1 to Opco 2 in consideration for a note.

Paragraph 84.1(1)(b) applies and a dividend is deemed to have been paid by Opco 2 to Mr. A and received by him from Opco 2 at the time of the disposition.

Paragraph 129(1)(a) states that Opco 2 may obtain a dividend refund in respect of taxable dividends paid on shares of its capital stock in its taxation year and at the time it was a private corporation.

However, in technical interpretation 2002-0128955 (the “Technical Interpretation”), the CRA took the position that a corporation is not entitled to a dividend refund under paragraph 129(1)(a) with respect to a dividend it is deemed to have paid under paragraph 84.1(1)(b).

As such, Opco 2 would not be entitled to a dividend refund with respect to the dividend it is deemed to have paid to Mr. A.

Question

Would the CRA still apply the position expressed in the Technical Interpretation in situations similar to the one described above?

CRA Response

No.  After analyzing the issue and reconsidering our previous positions in that respect, we have concluded that the Technical Interpretation no longer represents CRA’s position on this issue.

The granting of a dividend refund to a corporation deemed by paragraph 84.1(1)(b) to have paid a dividend provides an outcome that is more in accordance with the integration principle embedded in the Act.

Jean Lafrenière
2019-082452
December 3, 2019

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2020

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2020