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. 83(2.1) would apply to a dividend paid by Corporation A to Corporation X, given the stated main purpose. However, the exception in s. 83(2.4) would need to be reviewed, as to which insufficient facts were provided. In the context of there having been an amalgamation, s. 87(2)(z.1) provided that if a capital dividend were paid by a predecessor corporation and a portion thereof would be deemed to be a taxable dividend by s. 83(2.1), the CDA of the predecessor corporation is not transferred to the amalgamated corporation – so that it would thus be necessary to determine whether all or substantially all of Corporation A's CDA, immediately before the payment of such a dividend, could reasonably be considered to consist of amounts not described in paras. (a) to (e) of subsection 83(2.4). In particular, there was insufficient information to determine if any part of the CDA of Corporation A represented an amount of CDA realized by a corporation before it became related to Corporation X.