Neal Armstrong alerts us to a nasty trap. Suppose Opco pays a dividend to a trust-shareholder, which immediately distributes an amount to Holdco, a beneficiary of the trust. Suppose that the trust then sells its shares of Opco, before the end of the calendar year. The CRA takes the view that a 104(19) designation in respect of the amount distributed by the trust to Holdco is not effective until the end of the calendar year. As a result, Part IV tax will apply to the amount Holdco received because the amount is a dividend only at the end of the year at a time when Opco and Holdco are no longer connected. See CRA technical interpretation 2016-0647621E5 dated June 3, 2016. File that under “Yikes”.
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