A corporation pays a preferred share stock dividend on its common shares and then redeems the preferred shares for their redemption value. Given that such redemption value equals the shares’ FMV and that Algoa Trust found that s. 160 does not apply to a stock dividend, does it follow that s. 160 could not be applied? CRA responded:
[T]he expression "transferred property, either directly or indirectly, by means of a trust or by any other means whatever" in subsection 160(1) must be interpreted broadly and allows the application of the provision to situations where multiple steps are performed. …Where the shares of a corporation issued pursuant to a dividend declared by the corporation are subsequently redeemed, the existence of a transfer subject to subsection 160(1) is an issue that requires the analysis of all the facts of the particular situation.
If it is determined that the transactions result in a transfer subject to the application of subsection 160(1), the extent of the joint and several tax liability of the transferee will, in general, then have to be determined pursuant to 160(1)(e). In those circumstances, we are of the view that the determination of the existence of particular consideration for a property and the FMV of that consideration should be made in light of the particular facts of the situation under analysis. Regarding the situation submitted, it would be necessary, in particular, to consider that the right of the shareholder to receive payment on the redemption of the shares originates from the fact that these shares were issued in payment of a dividend in respect of other shares.