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Chris Falk Stefanie Morand <strong>McCarthy</strong> 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. 66 67 68 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. 560600/422632 MT DOCS 11864055v1G 26
Chris Falk Stefanie Morand <strong>McCarthy</strong> Tétrault LLP Pursuant to subsection 89(14), it is now possible for a corporation paying a taxable dividend to designate, at the time it pays the dividend, any portion of the dividend as an eligible dividend. 69 The portion of the dividend so designated will qualify for the enhanced dividend tax credit (“DTC”) and the remaining portion will qualify for the regular DTC. Pursuant to subsection 89(14.1), late designations are possible provided that: (i) the designation is made within three years of payment of the dividend, and (ii) the Minister is of the opinion that the circumstances are such that it would be just and equitable to accept the designation. * * * 69 A corporation designates a portion of a dividend it pays at any time to be an eligible dividend by notifying in writing at that time each person or partnership to whom the dividend is paid that the portion of the dividend is an eligible dividend. 560600/422632 MT DOCS 11864055v1G 27
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Presentation Material - McCarthy TÃ©trault

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