Mr. X holds 100 Class A voting participating shares of Opco with a fair market value of $5M and nominal adjusted cost base and paid-up capital. He incorporates Holdco whose shares have nominal fair market value, adjusted cost base and paid-up capital and exchanges his Class A shares of Opco for preferred shares of Opco with the same FMV, ACB and PUC as the exchanged Class A shares. Opco issues Mr. X 100 Class A shares for nominal consideration and also issues 100 discretionary dividend shares to Holdco. In order to limit the net asset value of Opco to $5M (i.e., for creditor-proofing purposes), Opco annually pays dividends of $500K on the discretionary shares held by Holdco.
CRA stated (TaxInterpretations translation):
We are of the view that subsection 15(1) could apply to the extent that Holdco acquired the discretionary dividend shares of Opco for consideration less than their FMV. Indeed, Opco could be considered to have conferred a benefit on Holdco under section 15(1) when the shares were issued.