Principal Issues: Whether the payment of certain dividends by a particular eligible entity that is a publicly traded company or a subsidiary of such a company only affects its own wage subsidy entitlement under subsection 125.7(2) pursuant to subsection 125.7(2.01)?
Position: A particular eligible entity’s wage subsidy entitlement under subsection 125.7(2) can only be affected by certain dividends paid in certain qualifying periods by that particular eligible entity pursuant to subsection 125.7(2.01).
Reasons: Textual, contextual and purposive interpretation of the law.
XXXXXXXXXX 2021-092223 Steven Pannozzi, MTAX
August 3, 2022
Dear XXXXXXXXXX:
Re: Bill C-2 Amendments to section 125.7 of the Income Tax Act
We are writing in response to your email dated December 22, 2021, regarding a list of questions compiled through the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada. The questions concern amendments to section 125.7 of the Income Tax Act (“the Act”) made pursuant to Bill C-2: An Act to provide further support in response to COVID-19, which received Royal Assent on December 17, 2021. Specifically, your questions (footnote 1) pertain to new subsections 125.7(2.01) and (14.1) of the Act.
Our Comments
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.
Question 5 – Dividends
Does the payment of a dividend only affect the dividend payer, or
a. Can the payment of a dividend by a publicly traded company affect all of its subsidiaries?
b. Can the payment of a dividend by a subsidiary affect the publicly traded company?
c. Can the payment of a dividend by a subsidiary affect a sister or other subsidiary?
CRA Response
Subsection 125.7(2.01) of the Act provides that, “[d]espite subsection (2), no overpayment on account of a qualifying entity’s liability under this Part for the taxation year in which the qualifying period ends is deemed to have arisen with respect to a qualifying entity that is a publicly traded company or a subsidiary of such a company if, in the qualifying period, it paid taxable dividends to an individual who is a holder of common shares of the company or of the subsidiary of the company.”
Based on a textual, contextual, and purposive analysis of subsection 125.7(2.01) of the Act, it is our view that the word “it” used in subsection 125.7(2.01) of the Act refers solely to the particular eligible entity that is the subject of the provision. In other words, there is only one entity that can trigger the application of subsection 125.7(2.01) of the Act in respect of a particular eligible entity for a particular qualifying period, and that is the entity itself, being either a publicly traded company or a subsidiary of a publicly traded company. As such, the payment of a dividend by a particular payer can only affect that payer’s entitlement to a subsidy under subsection 125.7(2) of the Act as a result of the application of subsection 125.7(2.01) of the Act.
We trust our comments will be of assistance.
Yours truly,
Amanda Couvrette, CPA, CA
Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Please note that not all of the questions submitted are addressed in this technical interpretation. Also note that the numbered question below corresponds to the original inquiry.