Share Purchase and Capital Dividend - Where one of the purposes of acquiring a share is to receive a capital dividend on the share acquired, the dividend may be deemed to be a taxable dividend.


Where one of the main purposes of a series of transactions which includes an acquisition of a share is to receive a capital dividend on the share acquired, the dividend is generally deemed to be paid and received as a taxable dividend (Subsection 83(2.1)) absent an exception.

In a November 9, 2017 Technical Interpretation (2017-0704221E5, Seguin, Marc), CRA considered the potential application of this anti-avoidance provision where a resident individual acquired the shares of a corporation with a CDA balance.

CRA noted that there are several exceptions to the conversion of a capital dividend to a taxable dividend. One exception is where it is reasonable to consider the purpose of the capital dividend is to distribute an amount received by the corporation which was added to its CDA due to receipt of life insurance benefits (Subsection 89(2.3)). CRA noted that it was a question of fact whether this purpose test was met.

More complex exceptions exist where capital dividends flow through multiple corporations or there has been an amalgamation to enable the life insurance to be paid out without conversion to a taxable dividend.

In the hypothetical example considered by CRA, the CDA balance under discussion arose from the proceeds of a life insurance policy on the death of a shareholder. CRA opined that even where one of the main purposes of the share purchase by the individual was to receive a capital dividend, the anti-avoidance provision would not apply due to these exceptions.

CRA also noted that, even where a technical exception applies, the General Anti-Avoidance Rule (GAAR, Section 245) could apply based on all of the facts and circumstances.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 441

Stock Option Benefit - Withholding Requirement - CRA confirms there is no withholding requirement on stock option benefits arising from the disposition of CCPC shares.


At the time when a stock option is granted to an employee, no benefit is recognized (Paragraph 7(3)(a)). When the option is exercised, a benefit is recognized unless the employer is a CCPC dealing at arm’s length with the employee. In those cases, the benefit is generally deferred until the year in which the share is disposed of (Subsection 7(1.1)).

An employee’s stock option benefit is generally subject to withholding and remittance requirements (Subsection 153(1.01)). In a January 3, 2018 Technical Interpretation (2017-0709811I7, Pietrow, Victor), CRA noted that where the income deferral (Subsection 7(1.1)) is applicable, no withholding is required in respect of the disposed stock (Paragraph 153(1.1)(b)).

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 441

Personal Use of Corporate Aircraft - CRA has updated their administrative policies related to employee and shareholder use.


In a CRA communication dated March 7, 2018 (AD-18-01), CRA provided updated commentary on taxable benefits arising from the personal use of a business aircraft.

CRA first categorized the types of flights into three groups, as follows:

  • Mixed-use flights – If a shareholder or employee takes a flight which had a clear business purpose, they would not generally have a taxable benefit. An individual’s purpose is a question of fact. If others take the same flight but for purely personal purposes, the value of the taxable benefit would be equal to the highest priced ticket available for an equivalent commercial flight available in the open market.

  • Full personal use flights – Where there is no business purpose to the flight, the shareholders or employees will be considered to have received a taxable benefit equal to the price of a charter on an equivalent aircraft for an equivalent flight in the open market (split amongst relevant individuals on the flight). Limited exceptions may apply where an open market charter is not a viable option (such as where there are demonstrable bona fide security concerns). In those cases, the benefit is calculated using the above “Mixed-use flight” option.

  • Full personal use by non-arm’s length persons – For shareholders or employees who do not act at arm’s length with the business, wherethe aircraft is used primarily for personal purposes relative to the aircraft’s total use, the taxable benefit will equal their portion of the aircraft’s operating costs plus an available-for-use amount. The available-for-use amount should be computed as the original cost multiplied by the prescribed interest rate for the percentage of personal usage. The available-for-use amount on leased aircrafts is based on the monthly leasing costs of the actual usage times the proportion of personal usage.

CRA also reminded taxpayers that an individual who is both a shareholder and an employee should determine whether they are receiving the benefit in their capacity as an employee or shareholder.

Finally, taxable benefits in respect of passengers that are non-employee family members or friends would be assessed on the shareholder or employee.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 441

Life in the Tax Lane - November 2018

This FREE 10-minute video for Canadian Tax Professionals includes rapid-fire discussion of select recent developments in the wonderful world of Canadian tax presented by the Video Tax News Team. 


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