A debenture issued by a corporation provided for the payment of base interest plus the payment of an “additional interest” on maturity that was the greater of a fixed amount and a formula amount based inter alia on the imputed value of the corporation’s equity. Before going on to find that there would be a s. 20(1)(f) deduction for the additional interest if it did not satisfy the requirements for deduction of participating interest under s. 20(1)(c), the Directorate indicated that it could not be treated as a dividend, stating:
The Act contains no specific definition of the word "dividend", but subsection 248(1) stipulates that a dividend includes a stock dividend. Since the Act does not give any specific meaning to the word "dividend", it must be given its ordinary meaning. Consequently, any proportional distribution of income or capital gains by a corporation to its shareholders may be considered a dividend payment, unless the corporation can demonstrate that it is some other type of payment. The fact that such a distribution is not to be called a dividend payment does not change its nature. In light of this proposition, in order for an amount to be considered a dividend, it must be distributed to a person who qualifies as a shareholder of the Corporation, which does not appear to be the case here. … Consequently, you cannot characterize this amount as a non-deductible dividend to the corporation.