An estate owns all the shares of Corporation A, which has a capital dividend account (CDA) and refundable dividend tax on hand account (RDTOH) but owns no assets. The estate sells its shares to Corporation X, which has assets but not CDA or RDTOH - following which Corporation A and Corporation X amalgamate, with the amalgamating corporation paying a capital dividend to Corporation X. One of the main purposes of these transactions was to allow Corporation X to benefit from Corporation A's CDA and RDTOH
CRA indicated that prima facie s. 129(1.2) would apply to any dividend paid by Corporation A to Corporation X given the stated main purpose. Now taking under consideration the amalgamation, s. 87(2)(aa) provided that if a dividend were paid by a predecessor corporation and a portion thereof would be deemed not to be a taxable dividend by s. 129(1.2), the RDTOH of the predecessor corporation is not transferred to the amalgamated corporation. Since “[i]n contrast to the application of subsection 83(2.1), there are no exceptions to the application of subsection 129(1.2),” the latter provision would apply to notional dividend under s. 87(2)(aa), so that the RDTOH of Corporation A would not carry through to Amalco.