19 April 1990 Income Tax Severed Letter AC74812 - Meaning of "Capital Dividend Account" of a Corporation

APRIL 19 1990

Assessing & Enquiries Directorate              Specialty Rulings
                                                 Directorate
                                               Firoz Ahmed
                                               957-2092

Attention: D.I. Wyse
Trust and SER Assessing Section
                                               7-4812

Paragraph 89(1)(b) of the Income Tax Act (the "Act")

This is in response to your memorandum of March 15, 1990 in which you requested our interpretation of paragraph 89(1)(b) of the Act in the context of the fact situation described herein.

Facts

                          24(1)

Opinions

Subject to the specific comments noted herein, we are in agreement with your interpretation of paragraph 89(1)(b) of the Act. That is the amount of the 24(1)

The reasoning underlying this conclusion is outlined below. In computing the CDA of a corporation under paragraph 89(1)(b), as it read for 1985 and 1986, subparagraph 89(1)(b)(iii) required the inclusion of the amount, if any, by which the aggregate of the amounts included in respect of a business by virtue of subparagraph 14(5)(a)(iv) of the Act (clause 89(1)(b)(iii)(A), now subclause (iii)(A)(I) exceeded the aggregate of the CEC of the corporation at the beginning of the relevant period (clause 89(1)(b)(iii)(B), now subclause (iii)(A)(II) and one-half of the eligible capital expenditures incurred by the corporation in respect of the period (clause 89(1)(b)(iii)(C), now subclause (iii)(A)(III)).

By virtue of paragraph 87(2)(a) of the Act

                              24(1)

However, paragraph 87(2)(f) provides that for the purposes of computing the CEC of the amalgamated corporation at any time ... the amount of the CEC of the predecessor 24(1) as the case may be), immediately before the amalgamation , shall be added to the amount determined under subparagraph 14(5)(a)(i). As clause 89(1)(b)(iii)(B) (now subclause (iii)(A)(II)) refers to the CEC of 24(1) immediately before the amalgamation in computing the CDA of 24(1) under clause 89(1)(b)(iii)(B).

As noted above, we have two comments as to the calculations provided in the schedules to your memorandum.

                       24(1)

Yours truly, for Director Reorganizations and Non-resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch