ROUND TABLE - CGA - JANUARY 10, 1992
Officer: M P Sarazin
File: 7-912208
QUESTION #3
Would the Department attempt to invoke the provisions of subsection 55(2) of the Act with respect to so-called "purification transactions" (involving an actual or deemed dividend) carried out as part of estate planning, which are designed to make the shares of a corporation eligible for the additional capital gains deduction of $400,000 in the case of a deemed disposition on death?
ANSWER
Where a dividend is not part of a series of transactions and events the results of which include a disposition of property to a person with whom the corporation was dealing at arm's length or a significant increase in the interest in any corporation of any person with whom the corporation was dealing at arm's length, subsection 55(2) of the Act does not apply pursuant to the exception provided in paragraph 55(3)(a) of the Act. The deemed disposition of a taxpayer's property on the taxpayer's sudden death would generally not be considered to be part of the series of transactions carried out as part of such estate planning.
Moreover, subsection 55(2) of the Act does not apply if a corporation receives an actual dividend whose purposes do not include significantly reducing the capital gain which would have resulted from the disposition of a share. The question whether one of the purposes of a series of transactions was to reduce the capital gain that would have resulted without the dividend is a question of fact with respect to which it is not possible to give an opinion that has general application.