Principal Issues: Does deemed gain under 55(2)(c) occur at time of payment of dividend? Does addition to CDA of such gain occur at time of payment of dividend?
Position: Yes. Yes.
Reasons: The law.
2017 CTF Annual Conference
CRA Roundtable
Question 4: Timing of deemed gain under 55(2)
Where subsection 55(2) applies to a dividend that is not received on a redemption, acquisition or cancellation of a share to which subsection 84(2) or (3) applies, the dividend recipient is deemed to have a gain under paragraph 55(2)(c), for the year in which the dividend was received from the disposition of a capital property.
Does the deemed gain occur at the time of the payment of the dividend?
Does the addition to the capital dividend account (“CDA”) occur at the time of the payment of the dividend?
In document 2011-0412131C6, the CRA indicated that the CDA addition that is caused by the application of former paragraph 55(2)(c) can only be available for distribution as a capital dividend in the taxation year following the year in which the gain was included in income by virtue of subsection 55(2).
CRA Response
In light of the amended wording in current paragraph 55(2)(c) and our understanding of the tax policy of current subsection 55(2), the CRA is of the view that the amount deemed to be a gain under paragraph 55(2)(c) is deemed to be realized on a disposition of a capital property at the time of the payment of the dividend for purposes of inclusion in income and the definition of “capital dividend account” in subsection 89(1).
M. Ton-That
2017-072405
November 21, 2017