The CRA takes the position that a dividend allocated by a trust is not paid until December 31. As a result, a trust beneficiaryco could be subject to Part IV tax if a target corporation pays a dividend through the trust and then the shares of the target are sold so that the beneficiaryco will not be connected to the target as of December 31 (see “Important safety tip“).
The writers note two possible planning opportunities that seem to flow from the CRA’s position.
- If Opco has RDTOH and a January year-end, while Beneficiaryco has a November year-end, then Opco could pay a dividend to the trust on January 30, 200x, that triggers a refund for Opco in that year. Beneficiaryco, however, won’t be considered to receive the dividend until December 31, 200x, and so it won’t be subject to Part IV tax in respect of the dividend until its 200(x+1) taxation year.
- If Opco pays a dividend to a trust that allocates it to Beneficiaryco at a time when Opco and Beneficiaryco are not connected, then Part IV should apply. If, however, the corporations become connected later in the same calendar year, Part IV tax will not apply because the dividend will not be considered as having been received until December 31 of that year.
The writers muse whether these odd results will prompt “yet another amendment to what is already a very complicated statutory regime for dividends”.
David Carolin and Manu Kakkar “Estate Plans, Trusts, and Dividends: Is There a Gap Here?” Tax for the Owner-Manager 21:1 (January 2021)
