Readers of this blog will know that I am not a fan of discretionary dividend shares (shares issued for $1, or some other nominal amount, that are redeemable for that amount but entitled to unlimited dividends). I harbour these concerns despite that these types of shares appear to be the rule rather than the exception in medical professional corporations. Joan E. Jung and Cynthia M. McIntyre, “Current Issues,” 2013 Ontario Tax Conference, (Toronto: Canadian Tax Foundation, 2013), contains a good discussion of the CRA concerns regarding the shares. The CRA has questioned whether such shares, when they are issued for $1, have been issued for fair market value (has the corporation conferred a benefit where the shares are issued for the nominal amount?). The CRA has also raised the spectre of 69(1)(b), per R v Kieboom, 92 DTC 6382 (FCA), and the possible application of the GAAR.
The authors appear to believe that a freeze under section 51 or 86, coupled with a price adjustment clause (PAC) and followed by the issue of dividend shares, should address the 15(1) and 69(1)(b) concerns. I’m not so optimistic: if the CRA thinks the issue of dividend shares is abusive, will it respect the PAC?
