Messrs. A and B wholly-own Holdco A and B, respectively, each of which, in turn, holds half of the Class B shares of Opco having an FMV of $500,000. Messrs. A and B also each hold half of Opco’s Class A shares having in each case an FMV of $1,000,000. Opco holds an insurance policy that pays out in part in the event of disability. In the case of disability of either individual, Opco will receive the proceeds of the policy covering such event in order to then pay a special dividend of $1,000,000 to the Holdco of the active shareholder to fund the purchase by the latter of the shares held directly by the disabled individual – with Opco then redeeming shares held by the purchased Holdco of the disabled individual for $500,000.
After indicating that there was insufficient information to provide more than a general discussion of the purpose tests in ss. 55(2.1)(b)(i) and (ii), CRA noted that, in 2015-0613821C6, it indicated that it could issue a favourable advance ruling on a determination of purpose “where all manifestations of purpose and corroborating circumstances support the absence of one of the purposes described in subparagraph 55(2.1)(b)(ii) and (ii)” with such determination “conditional on the representation made by the taxpayer that the purposes for which the dividend was paid do not include one of the purposes described in proposed paragraph 55(2.1)(b)(i) and (ii) … .”
CRA then stated:
Although in certain circumstances the dividend paid by Opco to the holding corporation of the active shareholder may not be considered to have any of the purposes described in paragraph 55(2.1)(b), that determination can only be made after a review of all the facts of a particular situation.