| June 18, 1990 | |
| MISSISSAUGA DISTRICT OFFICE | Business and General |
| J.C. Bates | Division |
| Chief of Basic Files Section | Bill Guglich |
| 957-2102 | |
| T. Phull | |
| File No. 900483 |
SUBJECT: Application of Section 80 to Waived Dividends
This is in reply to your memorandum of April 19, 1990 concerning the application of section 80 of the Act where shareholders have unconditionally waived their rights to dividends.
As indicated in the Special release to IT-208 and the 1984 and 1986 Tax Conference Revenue Canada Round Table, the Department's practice is to deal with any problems respecting waived dividend on an individual case basis.
The Department's position is that section 80 of the Act is not applicable to waived dividends.
In our view paragraph 80(d) excludes the application of section 80 (even though the practice is to allow a corporation to deduct interest paid on money borrowed to pay dividends) since the interest referred to in paragraph 80(d) is interest payable by the taxpayer (corporation) to shareholders on the dividend debt (which is not deductible) and not interest payable by the taxpayer to a lender on money borrowed to pay the dividends.
Although section 80 of the Act does not apply in respect of waived dividends, there are other provisions of the Act that may be applicable depending on the details of the particular case. Some of the more obvious ones are subsections 56(2), 56(4) and 245(2).
As discussed in our telephone conversation (Phull/Guglich), without a description of the details in your particular case, we are unable to comment as to the provisions of the Act that may apply in your case.
We trust this will be of assistance to you.
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch