Regarding the meaning of “or” in the phrase “the dividend was received or paid” included in the exclusion added to s. 55(5)(e)(i) by Bill C-208 (a Private Member’s bill), CRA stated:
A strict reading of subparagraph 55(5)(e)(i) indicates that either the dividend payer or the dividend recipient has to be a corporation (herein referred to as “such corporation”) the shares of which are qualified small business corporation shares or shares of the capital stock of a family farm or fishing corporation, and not both, because brothers and sisters are not deemed to be unrelated and dealing with each other at arm’s length where the dividend is received or paid by such corporation.
It is difficult to deduce the rationale that requires only one of the dividend payer or dividend recipient to be such corporation. However a textual, contextual and purposive interpretation of subparagraph 55(5)(e)(i) does not allow us to override its wording … .
CRA added:
[P]aragraph 55(3)(a) is restricted in its application to subsection 84(3) dividends in order to facilitate bona fide internal reorganizations and is not intended to provide taxpayers with a tool to create or multiply ACB ... .