Michael Welters “Results Test in Subsection 55(2)” Canadian Tax Highlights 25:3 (March 2017) discusses 101139810 Saskatchewan Ltd. v R, 2017 TCC 3. The court applied 55(2) to intercorporate dividends paid to two holdcos even though the individual who owned them also paid tax on the same economic gain (this was not double taxation). The judge found that the results test was met so that 55(2) applied simply because the dividend recipients would have paid tax on a sale of the shares that were redeemed instead. According to the author:
Many practitioners have feared that the results test in subsection 55(2) meant that the deemed dividend from a share redemption was converted into a capital gain, unless there was sufficient safe income or an exception applied. Prudent practice avoided the risk unless there was reassurance that safe income or a subsection 55(3) exemption was available. This case affirms the prudence of that approach.
