{"id":896,"date":"2013-09-30T17:01:53","date_gmt":"2013-09-30T17:01:53","guid":{"rendered":"https:\/\/thor.ca\/\/blog\/?p=896"},"modified":"2013-09-30T17:01:53","modified_gmt":"2013-09-30T17:01:53","slug":"cra-says-gaar-could-be-applied-to-convert-dividend-on-foreign-affiliate-shares-into-capital-gain","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2013\/09\/cra-says-gaar-could-be-applied-to-convert-dividend-on-foreign-affiliate-shares-into-capital-gain\/","title":{"rendered":"CRA says GAAR could be applied to convert dividend on foreign affiliate shares into capital gain"},"content":{"rendered":"

In 2010-0387631I7<\/a> (released September 25, 2013), the CRA\u2019s head office advised a local tax services office that the general anti-avoidance rule could be used, in some cases, to convert a tax-free dividend on foreign affiliate shares into a taxable gain. It appears the local tax services office was intending to reassess a taxpayer under s. 55(2) to convert a tax-free dividend, paid from one foreign affiliate to another foreign affiliate, into a taxable gain on non-excluded property shares (i.e., into a FAPI gain). The CRA\u2019s head office rightly corrected the local tax services office by saying that s. 55(2) is a domestic provision which has potential application only where a dividend is paid from one Canadian corporation to another. The CRA\u2019s head office also rightly noted that a dividend between foreign affiliates already has the effect to reducing the cost base of the shares if there is insufficient surplus pools in the paying affiliate, such that a taxable capital gain could well arise under s. 40(3). The facts did not reveal whether such a gain would arise. However, the CRA\u2019s head office went further and said the general anti-avoidance rule in s. 245 (GAAR) could be applied if the effect of the tax-free dividend were to somehow access a greater amount of surplus pools in the paying affiliate than would be possible if the shares of that affiliate were instead simply sold to a third party and an election (to access the affiliate\u2019s surplus pools) were filed under s. 93. In such a situation, the tax-free dividends could be viewed as having been paid to avoid a taxable (FAPI) gain that would otherwise arise on a direct sale of the foreign affiliate shares. The GAAR might be applied to reverse this result.<\/p>\n","protected":false},"excerpt":{"rendered":"

In 2010-0387631I7<\/a> (released September 25, 2013), the CRA\u2019s head office advised a local tax services office that the general anti-avoidance rule could be used, in some cases, to convert a tax-free dividend on foreign affiliate shares into a taxable…<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-896","post","type-post","status-publish","format-standard","hentry","category-corporate-tax"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/896","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=896"}],"version-history":[{"count":0,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/896\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=896"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=896"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=896"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}