Theresa Lo, CPA Chartered Professional Accountant 陳盧韻詩注册會計師事務所
Theresa Lo, CPAChartered Professional Accountant陳盧韻詩注册會計師事務所

Part 2: Corporate Federal Taxes Changes

5.  Changes to tax avoidance rules re: subsection 55(2)


When subsection 55(2) applies, the inter-corporate dividend is converted to proceeds of disposition, resulting in a taxable capital gain.  Under the old rule, certain way of inter-corporate transactions can create a tax free inter-corporate dividend even though the capital gain should be recognized if the transaction is done in a more direct way.


In Budget 2015, federal government proposed an amendment subsection 55(2) so such inter-corporate transactions cannot be converted into tax-free dividends.  Such amendment is carried forward to Budget 2016 and confirmed its implementation.


There are five main changes to the rules:

  • New purpose tests for dividends
  • Conversion of capital gains into dividends from the disposition of capital property
  • Restriction on the exception of related party dividends
  • Changes to the inter-corporate stock dividends if the value of the share becomes nominal
  • Allocation of safe income


For more information, please contact us @ 604-639-3229 or


Note:  All information relating to s.55(2) above is available from Government of Canada website.


By Theresa Lo, CPA, CGA

October 11, 2017

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