2024-1038191C6 2024 CTF Conference - Q.2 Subsection 55(2) and Intra-Corporate Dividends

Principal Issues: Whether the CRA can provide an update on the application of subsection 55(2) to ordinary course intra-group dividends.

Position: Our position remains the same and we encourage taxpayers to obtain additional comfort, if required, through requests for advance income tax rulings.

Reasons: The law and continuity in our publicly shared positions since 2015.

Author: Lemieux, Simon
Section: 55(2) ; 55(2.1)

2024 CTF Annual Tax Conference

CRA Round Table

Question 2 – Subsection 55(2) and Intra-Corporate Dividends


Many dividend-paying public corporations rely on dividends received from their subsidiaries to fund their public dividends. In CRA documents 2015-0613821C6 (November 17, 2015) and 2016-0627571E5 (June 23, 2016), the CRA confirmed that, where a dividend is paid pursuant to a well-established dividend policy and the amount of the dividend does not exceed a reasonable dividend return on equity on a listed share issued by a comparable corporation in the same or similar industry, the purpose test in paragraph 55(2.1)(b) is not met. For this purpose, the term “reasonable dividend income return on a […] listed share” refers to dividends paid regularly by widely-held corporations to their shareholders on publicly listed shares. A corporation that has a policy of paying on its listed shares quarterly dividends that are set at a fraction of yearly earnings would fit that description. The CRA noted that, in the proposed question where dividends are paid up a corporate chain to fund a parent corporation’s dividend, the purpose can only be determined by a review of all the particular facts and that the purpose of a dividend has to be analyzed at each level of payment through a corporate chain.

Can the CRA provide any update on the application of subsection 55(2) to ordinary course intra-group dividends?

CRA Response

Our positions expressed in documents 2015-0613821C6 and 2016-0627571E5 are still valid. In document 2018-0765271C6, we referred to our past positions and reiterated that we were ready to provide additional comfort in the course of advance income tax rulings, subject to certain conditions:

“Guidelines providing a greater level of comfort could be developed in the context of a ruling request with all the relevant facts. As expressed previously at various venues, the CRA is open to consider rulings that involve the determination of purpose where taxpayers require some level of comfort regarding the application or non-application of subsection 55(2) to their proposed transactions. A favourable ruling could be provided where all manifestations of purpose and corroborating circumstances support the absence of one of the purposes described in paragraph 55(2.1)(b). The ruling would be conditional on the representation made by the taxpayer that the purposes for which the dividend was paid do not include one of the purposes described in paragraph 55(2.1)(b) and on the completeness of the description of all the manifestations of such purpose and corroborating circumstances. However, other than rulings on loss-consolidation, the CRA has not been deluged by requests for rulings on this topic.”

Taxpayers are encouraged to use such channel, where additional comfort is needed on the issue of regular dividends.



Simon Lemieux
2024-103819
December 3, 2024

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