| 24(1) | 900793 |
| L.A. McGarron-McGuire | |
| (613) 957-2092 | |
| Attention: 19(1) | EACC9450 |
July 10, 1990
Dear Sirs:
Re: Subsection 83(2) of the Income Tax Act (the "Act")
We are writing in response to your letter dated May 1, 1990 in which you requested that we confirm that an election under subsection 83(2) of the Act can be made in respect of a previously declared taxable dividend.
You specifically asked whether "a corporation could convert a taxable dividend into a capital dividend merely by preparing a directors' resolution and filing a late filed election to that effect".
In our view, where the directors of a corporation are legally entitled to administer the affairs of the corporation, and they authorize an election to be made under subsection 83(2) of the Act, a previously declared dividend can be deemed to be a capital dividend to the extent of the corporation's capital dividend account immediately before the dividend becomes payable, so long as the election is made in the manner prescribed by section 2101 of the Income Tax Regulations (the "Regulations"). Section 2101 of the Regulations does not require that the directors' resolution authorizing the payment of the dividend provide that the dividend is to be paid out of the capital dividend account. We have assumed that the corporate law of the relevant jurisdiction would not prevent the directors from authorizing the making of a capital dividend election in such circumstances.
If the election is late-filed (i.e. if any part of the dividend is paid or becomes payable before the election is filed), subsection 83(3) of the Act requires that the corporation pay, when the election is made, the estimated penalty in respect of the election, as calculated under subsection 83(4).
The foregoing expressions of opinion are given in accordance with the practice referred to in paragraph 24 of Information Circular 70-6R dated December 18, 1978 and are not binding on Revenue Canada, Taxation.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch