Canada: Inter-company dividends, anti-avoidance rule | KPMG | GLOBAL

Canada: Inter-company dividends may possibly trigger anti-avoidance rule

Canada: Inter-company dividends, anti-avoidance rule

Canadian corporations that receive dividends from other Canadian corporations now have more guidance from the Canada Revenue Agency (CRA) about the potential application of an expanded anti-avoidance rule. Many corporations may be adversely affected by this rule that recharacterizes certain otherwise tax-free inter-corporate dividends as capital gains that are subject to tax. This expanded rule would apply to dividends received after 20 April 2015.


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The changes to the anti-avoidance rule in subsection 55(2) were introduced more than a year ago in the 2015 federal budget, and the proposed legislation is expected to become law soon. Despite the CRA’s latest guidance, it is unclear how the expanded rule may apply to dividends received by corporations in many common circumstances—including when cash or other assets are moved within a corporate group. As a result, taxpayers need to consider calculating “safe income” before paying a dividend to determine whether it qualifies for the safe income exception to the anti-avoidance rule for dividends paid out of a corporation’s safe income. 


Read a May 2016 report [PDF 148 KB] prepared by the KPMG member firm in Canada: Paying Inter-Corporate Dividends? Proceed with caution

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