Generally speaking, taxable Canadian corporations can pay dividends to other taxable Canadian corporations on a tax-free basis. For instance, consider a typical corporate structure where an operating company (Opco) is wholly owned by a parent corporation (Holdco), which in turn is owned by individual shareholders. A common practice used by many accounting practitioners is to pay tax-free intercorporate dividends from Ocpo to Holdco, annually, for securitization purposes.
However, in light of the 2015 federal budget, proposed amendments to the Income Tax Act have forced practitioners to undertake additional planning in this area, prior to a corporation making a dividend payment to a parent corporation. In the event that a corporation is offside of these new rules, an anti-avoidance rule may be engaged. Essentially, the anti-avoidance rule will recharacterize the above-mentioned tax tax-free dividend into a taxable capital gain.
Should these changes affect your corporation HGA will advise you in advance of proposing any dividend payment. In addition, HGA will be reviewing your corporate structure to determine what tax planning opportunities may be available to you and your corporation in light of these changes.