Mr. A transfers all the shares of Opco 1 to Opco 2 (which is owned 50-50 by him and his spouse) in consideration for a note. 2002-0128955 indicated that a corporation is not entitled to a dividend refund respecting a dividend it is deemed to have paid under s. 84.1(1)(b). Does this position apply to the s. 84.1(1)(b) dividend deemed to be received by Mr. A?
CRA noted that, as indicated in Q.1 of the 2019 APFF Roundtable, 2002-0128955 no longer represents CRA’s position, and the granting of a dividend refund to a corporation deemed by s. 84.1 to have paid a dividend provides an outcome that better accords with the integration principle.
CRA went on to note that the deemed dividend treatment under s. 84.1 allows the individual taxpayer on the receipt side to benefit from the integration mechanisms that are provided in the Act such as the gross-up and the dividend tax credit.
CRA also takes the position that, if the individual taxpayer is already a shareholder of the corporation, the individual can also benefit from another integration mechanism: the CDA account with respect to deemed dividend under s. 84.1. Accordingly, it is hard to justify why an individual taxpayer could benefit from the various integration mechanisms while the purchaser corporation could not.