On May 31, 20X1 (the last day of its taxation year), Opco pays a dividend of $10,000 to a family trust, which immediately distributes that amount to Holdco (a beneficiary), which has a calendar year end and is connected to Opco as per s. 186(4)(a). The $10,000 distribution is designated as a dividend under s. 104(19). On June 1, 20X1, the family trust sells all the shares of Opco to a third party. Is the dividend subject to Part IV tax?” In finding that this amount is subject to Part IV tax, CRA stated (TaxInterpretations translation):
[T]he amount designated in respect of the beneficiary (taxpayer) in accordance with subsection 104(19) should be considered to be deemed to be received as a dividend by the beneficiary of the trust at the end of the trust’s taxation year in which the trust received the dividend. This position is based on the fact that the trust cannot make the designation before the end of its taxation year and that the requirement that the trust is resident in Canada throughout the year cannot be satisfied until the end of the taxation year of the trust. …
Thus…Holdco is deemed to have received the dividend on the shares in the capital of Opco on December 31, 20X1. At that time, Opco and Holdco were not connected corporations given the sale…of Opco… .