Presentation Material - McCarthy Tétrault

Chris Falk
Stefanie Morand
McCarthy Tétrault LLP
CRA might take the position that even a nominal capital gain will have the effect of grinding to
nil the amount of the loss that can be carried back pursuant to subsection 164(6).
While the authors are of the view that this interpretation should be rejected since it leads to an
absurd result that is clearly contrary to the context and purpose of subsections 40(3.61) and
164(6), they note as follows:
• the CRA has invited practitioners who encounter scenarios where the grind might apply
to contact CRA so that the issue can be reviewed further on a case-by-case basis; 66
• if an advisor is consulted in respect of a possible post-mortem plan, the advisor:
o
o
should counsel the executors/trustees to avoid incurring any capital gains if
possible until after the estate’s first taxation year; and
will need to assess the risk of the grind applying in assessing planning
alternatives;
• the discussion highlights the fact that subsection 164(6) is a highly technical provision
that will not be available in all circumstances; 67
• the relief (if any) afforded by subsection 40(3.61) does not apply in respect of subsection
70(6) spouse trusts, alter ego trusts and joint spousal or common-law partner trusts; and
• consideration could be given to structuring the planning to fit within subsection 69(5). 68
More generally, practitioners are reminded that post-mortem planning can be complicated,
expensive and time-sensitive, but can be greatly facilitated by advance planning. To this end, it
is difficult to overstate the importance of good corporate and tax records, as well as the
importance of having an integrated estate plan that is reviewed regularly in light of changing
circumstances.
ELIGIBLE DIVIDEND DESIGNATIONS FOLLOWING BUDGET 2012
Prior to Budget 2012, the Act required that the recipient of a dividend from a Canadiancontrolled
private corporation (a “CCPC”) be notified at the time the dividend was paid that the
dividend was an eligible dividend. Late designations were not permitted, even where the
corporation had sufficient income taxed at the general corporate rate to make an eligible
dividend designation. Further, the Act did not permit a corporation to designate only a portion of
a dividend paid as an eligible dividend.
Budget 2012 proposed two helpful relieving measures which have since been enacted.
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The authors note that they have made a general submission in this respect.
Note also that, in some circumstances, the deceased will have sufficient loss carryforwards or tax credits to
shelter the gain on death such that the subsection 164(6) loss carry-back is of no benefit to the deceased.
Subsection 69(5) provides, in part, that where property of a corporation has been appropriated in any manner
whatever to, or for the benefit of, a shareholder, on the winding-up of the corporation, subsections 40(3.4) and
(3.6) do not apply in respect of any property disposed of on the winding-up.
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MT DOCS 11864055v1G
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