The anti-avoidance rules in Section 55 of the Income Tax Act (ITA) now apply to a greater number of private corporations. Practitioners and other tax professionals must now consider Section 55 for all intercorporate dividends to avoid unexpected tax.

Section 55 of the Income Tax Act (ITA) contains rules that can convert a tax-free intercorporate dividend to a capital gain. Previously, the anti-avoidance rules in Section 55 rarely applied to the tax planning of private corporations, but amendments to Section 55 have changed that. The broad manner in which these rules are written, along with CRA’s evolving interpretation of the rules, creates difficulty in understanding the application of such rules in both theory and practice. This seminar intends to provide an improved basis for understanding these rules and their application.

Topics Include:

• Overview of section 55
• The purpose test
• The exemptions that remain relevant to private corporations
• The calculation of safe income on hand
• The allocation of safe income on hand to the issued shares
• CRA statements and administrative policies in respect to the application of these rules

NOTE: This course description has been revised and reflects updates for 2024. If you have any questions, please contact pdevents@cpaontario.ca.

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By the end of this course, participants should be able to:

• Discuss the purposes of the anti-avoidance rules in section 55 and identify transactions where they might apply.
• Identify when the “purpose test” in section 55 would apply to a dividend.
• Apply the rules in 55(3) to determine if any exceptions apply to a dividend.
• Have a general understanding of 55(3)(b) butterfly transactions.
• Calculate the safe income on hand in various common situations.
• Identify how much of the safe income on hand is attributed to the types of shares typically issued by private corporations.
• Be aware of the CRA’s position on the application of section 55 to various types of dividends.