A private corporation (Aco), which had paid a capital dividend out of what it believed to be a capital dividend account balance generated by a property sale, was reassessed by CRA for Pt. I tax on the basis that the disposition was on income account, and also for Pt. III for the alleged excessive capital dividend. The Directorate rejected various procedural solutions suggested by Aco (which did not initially make a s. 184(3) election) for eliminating its Pt. III tax and generating a taxable dividend to Aco’s sole shareholder:
- Following the Court's dismissal of Aco's appeal, Aco would apply for an extension pursuant to s. 220(3.2) to file the s. 184(3) election, and CRA would undertake in advance to accept this request.
- Upon filing its Notice of Objection to the Pt. I and III tax reassessments, Aco would file a s. 184(3) election but would request that CRA not deal with that election until the Court had ruled in CRA’s favour.
- Aco would only file a Notice of Objection respecting the Pt. I tax reassessment and a s. 184(3) election, with the sole shareholder timely objecting to the Notice of Assessment received, but with CRA agreeing to deal with the shareholder's Notice of Objection only after Aco's Notice of Objection had been finally resolved, and with the shareholder deferring payment of the assessed tax until the objection was resolved.
- Aco would only file a Notice of Objection respecting the Pt. I tax reassessment and a s. 184(3) election, with the sole shareholder, rather than objecting to the Notice of Assessment received, providing CRA with a waiver to allow CRA to reverse the taxable dividend once Aco succeeded in court, with CRA agreeing to so reassess in such event.