QUESTION I 83
Stock Dividends
Subject to certain exceptions, subsection 248(1) provides that the "amount" of a stock dividend is the amount by which the paid-up capital of the corporation that paid the dividend is increased by the payment of the dividend. Subsection 43(2) of the Canada Business Corporations Act provides that if shares of a corporation are issued in payment of a dividend, the amount to be added to the stated capital account for the class of shares issued in payment of the dividend should be the declared amount of the dividend stated as an amount of money.
Consider the situation where an individual owns all the issued shares of a taxable Canadian corporation that declares a stock dividend. The declared amount of the dividend is stated as a nominal amount of money but the shares that are issued are redeemable for a greater amount. Assuming that subsection 15(1.1) of the Act would not otherwise apply, would the amount of the taxable dividend be equal to the nominal amount added to stated capital?
DEPARTMENT'S POSITION
Subject to certain adjustments set out therein, paragraph 89(1)(c) of the Act provides that the "paid-up capital" in respect of a class of
shares of the capital stock of a corporation is "... an amount equal to the paid-up capital in respect of the class of shares at the particular time, computed without reference to the provisions of this Act ...".
Accordingly, if the applicable corporate law allows for a nominal amount to be added to the stated capital account of the class of shares as a result of a stock dividend, the "amount", as defined in subsection 248(1) of the Act, of the stock dividend would be that nominal amount, unless paragraph (a) or (b) of that definition applies.
Prepared by: H. Woolley