17 August 1990 Income Tax Severed Letter ACC9299 - Capital Dividends - Tax on Excessive Elections

24(1)                                        901262
                                             M.P. Sarazin
                                             (613) 957-2125

Attention 19(1)

August 17, 1990

Dear Sirs:

Re: Subsections 83(2) and 184(2) of the Income Tax Act (the "Act")

We are writing in response to your letter dated June 12, 1990 in which you requested our opinion on the application of subsection 83(2) and 184(2) of the Act tot he following situation:

Facts

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2.

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In your letter you have outlined an actual fact situation related to a past transaction. As the review of such transactions falls within the responsibility of District Taxation Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known, we are unable to comment thereon. However, we con provide you with the following general comments which we hope will be of assistance to you.

It is the Department's view that when a corporation elects under subsection 83(2) of the Act i prescribed manner and prescribed form regarding a dividend which has become payable, then the dividend shall be deemed to be a capital dividend to the extent of the corporation's capital dividend account immediately before the particular time the dividend becomes payable . Transactions occurring subsequent to the particular time the dividend becomes payable generally would not alter the capital dividend account at that particular time. Where the dividend does not exceed the balance of the capital dividend account as defined in paragraph 89(1)(b) of the Act, then the provisions of subsection 184(2) would not apply to any part of the dividend.

We trust you will find the foregoing satisfactory.

Yours truly,

for Director Reorganizations and Non-Resident division Rulings Directorate Legislative and Intergovernmental Affairs Branch