D.S. Delorey (613) 957-2125
December 16, 1986
Dear Sirs:
Re: XXXX
The proposed transactions concerned the distribution of shares by XXXX in payment of a "stock dividend" as that term is defined in subsection 248(1) of the Income Tax Act (the "Act"). You requested confirmation that subsection 245(1.1) of the Act would not apply to deny an individual who receives shares from XXXX deduction under section 110.6 of the Act when he subsequently disposes of those shares.
Our Comments
Since the relevant transactions have been completed, we are unable to provide the requested rulings. We offer, however, the following comments.
As indicated in the November 27, 1986 Department of Finance Release entitled "New Measure To Prevent Tax Avoidance On Corporate Distributions", the payment of a stock dividend by a public corporation to its shareholders will not in and of itself result in the application of subsection 245(1.1) of the Act to deny a deduction under section 110.6 of the Act when the shareholder subsequently disposes of the shares so received.
However, such an arrangement may result in the corporation paying an additional tax if the stock dividend was paid with the intention of repurchasing the shares at their fair market value, either directly or indirectly on the open market.
We trust these comments will be of assistance. The two $250 minimum fees remitted with your requests will be refunded separately.
Yours truly,
for Director
Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
110.6 245(1.1)