CAPITAL DIVIDEND ACCOUNT
Question 32
In the Department's view can a corporation pay all of the balance of its capital dividend account to one shareholder on the redemption of that shareholder's shares or is each shareholder of a corporation entitled to a proportionate share of the corporation's capital dividend account?
Department's Position
Where the corporation redeems the shares owned by only one shareholder and the provisions of subsection 83(2.1) are not applicable, it is the Department's view that the corporation could pay the balance of its capital dividend account to that one shareholder.
Subsection 83(2.1) of the Act will apply where the series of transactions includes an acquisition of shares, one of the main purposes of which is to acquire a right to a capital dividend. Where the provisions of subsection 83(2.1) of the Act apply, the capital dividend will be deemed to be a taxable dividend.
October 17, 1991
M. Sarazin
000157