The CRA has reversed a long-standing (and questionable) position on whether a deemed dividend arising under paragraph 84.1(1)(b) of the Income Tax Act (Canada) gives rise to a dividend refund in the purchaser corporation. The CRA apparently now accepts that an 84.1(1)(b) deemed dividend is a dividend for these purposes, which reverses the position taken in technical interpretation 9729855 (January 19, 1998).
The reversal revives a planning opportunity from the late 90s, which is described in Aasim Hirji and Kenneth Keung “Planning Possibilities Resulting from CRA Policy Reversal on Section 84.1” 20:1 Tax for the Owner-Manager (January 2020).
Will GAAR apply to the taxpayer who uses the revived technique? Only time will tell, as Kent Brockman would say, but one wonders whether the CRA’s success with GAAR over the last decade or so led it to abandon what was anyway a questionable administrative position.
