Principal Issues: What are the qualifying periods affected by the payment of taxable dividends by a qualifying entity that is a publicly traded company or a subsidiary of such company?
Position: In the given example, the Canadian subsidiary will not be entitled to any THRP amount for the twenty-seventh qualifying period under subsection 125.7(2.01) if it paid taxable dividends in that qualifying period to individuals who are holders of common shares of its capital stock. Any amount of taxable dividends paid in the twenty-fourth qualifying period and any subsequent qualifying period by the Canadian subsidiary to individuals who are holders of common shares of its capital stock is furthermore subject to paragraph (b) of the element A in subsection 125.7(14.1).
Reasons: In accordance with the provisions of the Act and previous positions.
FEDERAL TAX ROUNDTABLE, OCTOBER 7, 2022
APFF CONFERENCE 2022
3. Reimbursement of benefits received under the Tourism and Hospitality Recovery Program ("THRP")
For Periods 23 and beyond, changes were made to the Tourism and Hospitality Recovery Program ("THRP") and the Hardest Hit Business Recovery Program.
We understand that publicly traded companies or their subsidiaries are not entitled to any grants for the claim period in which dividends were paid to individuals who are holders of common shares.
Consider the example of a parent company listed on the Paris stock exchange that has a subsidiary in Canada. The company declares a dividend to be paid on March 31, 2022 and has individual shareholders.
The Canadian subsidiary has claimed the THRP for the qualifying periods 24 to 28. We understand that the Canadian subsidiary will have to repay the THRP claimed, but only for period 27 (i.e., March 13 to April 9, 2022).
Question to the CRA
Does the CRA agree with this conclusion?
CRA Response
The payment of taxable dividends during certain qualifying periods by certain qualifying entities to an individual who is a holder of common shares of its capital stock may engage both subsection 125.7(2.01) and subsection 125.7(14.1).
Subsection 125.7(2.01) provides that a qualifying entity that is a publicly traded company or a subsidiary of such a company is not entitled to any subsidy in respect of a particular qualifying period if, in the qualifying period, it paid taxable dividends to an individual who is a holder of common shares of its capital stock. Subsection 125.7(2.01) applies to the twenty-third and subsequent qualifying periods.
If subsection 125.7(2.01) applies to a qualifying entity in respect of a particular qualifying period, the qualifying entity is not eligible for any grant in respect of that particular qualifying period.
Consequently, in this example, the Canadian subsidiary will not be entitled to any THRP amount for the 27th qualifying period if it has paid taxable dividends during that qualifying period to individuals who are holders of common shares of its capital stock.
Subsection 125.7(14.1) imposes, in certain circumstances, an obligation on an eligible entity that is a publicly traded company or a subsidiary of such a company to repay, in whole or in part, an amount of grant received in respect of any qualifying period after the twenty-third qualifying period. The amount of such repayment shall be determined in accordance with a formula set forth in that subsection.
In particular, paragraph (b) of the description of A of this formula takes into account, in the case of a publicly traded company or a subsidiary of such a company, the amount of taxable dividends paid by such a corporation during the twenty-fourth and any subsequent qualifying period to an individual who holds common shares of its capital stock.
Consequently, in this example, the payment of taxable dividends by the Canadian subsidiary in the 24th and any subsequent qualifying periods to individuals who are holders of common shares of its capital stock will come within paragraph (b) of the description of A in subsection 125.7(14.1)
Lyne Gélinas
October 7, 2022
2022-094212