{"componentChunkName":"component---src-templates-blog-post-ts","path":"/when-should-a-company-declare-dividends/","result":{"data":{"site":{"siteMetadata":{"title":"Clausehound Blog","author":"Joshua Koudys"}},"markdownRemark":{"id":"30331091-743d-5229-849f-8935825f6016","excerpt":"When declaring dividends it is important to be aware that your company may be susceptible to a reassessment by the Canada Revenue Agency (“CRA”). This is…","html":"

When declaring dividends it is important to be aware that your company may be susceptible to a reassessment by the Canada Revenue Agency (“CRA”). This is something you want to avoid, therefore knowing when reassessment can be triggered can be important to your business. I’ve provided a surface-level analysis of the relevant issues, below but be careful to consult your accountant or a tax lawyer for further clarification.

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The CRA will opt for a reassessment if they disagree with a taxpayer’s filing.

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In general, the CRA can order a reassessment when they have some suspicion or reason to believe that a tax filing is inaccurate. This can be triggered in several circumstances, such as (among others):

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  1. a corporation declaring dividends in a manner contrary to the company’s articles and regulations or other constating document;
    2. \n
  2. a corporation that has not paid income tax decides to declare a dividend;
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  3. if the principal purpose of a transaction can be inferred as an attempt to avoid, reduce or defer the payment of tax or if the dividend is part of a larger set of transactions, which involves other activities such as tax deference, the CRA may reference the General Anti-Avoidance Rule (“GAAR”) of the ITA, or other similar provincial anti-avoidance rules, and order a reassessment.
    4. \n
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For example, a reassessment can occur when a company has committed a series of transactions, which created the suspicion of an elaborate tax avoidance scheme, based on the following criteria:

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  1. the transaction results in a tax benefit;
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  2. the transaction is an avoidance transaction;
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  3. the transaction may reasonably be considered to result in a misuse or abuse of taxing legislation;
    4. \n
  4. when a corporation pays dividends directly before its shares are sold (called a “Capital Gains Strip”) for the purpose of converting a taxable capital gain from the disposition of shares into a tax-free intercorporate dividend; and
    5. \n
  5. if shareholders receive stock dividends that should have been included in the calculation of income, but were excluded.
    6. \n
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The purposes of a reassessment are usually motivated by the intention to assess tax avoidance actions by a company or an individual, where the CRA has concluded that certain transactions are not performed for bona fide reasons.

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While it is not possible to predict when a reassessment will occur, to avoid reassessment, seek expert advice on matters relating to tax, and act in good faith and based on advice of counsel.

","frontmatter":{"title":"When Should a Company Declare Dividends?","date":"May 26, 2015","description":"When declaring dividends it is important to be aware that your company may be susceptible to a reassessment by the Canada Revenue Agency (“CRA”). This is something you want to avoid, therefore knowing when reassessment can be triggered can be important to your business.","author":{"id":"rajah@cobaltcounsel.com","first":"Rajah","last":"Lehal","bio":"Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.","image":{"childImageSharp":{"fluid":{"base64":"data:image/jpeg;base64,/9j/2wBDABALDA4MChAODQ4SERATGCgaGBYWGDEjJR0oOjM9PDkzODdASFxOQERXRTc4UG1RV19iZ2hnPk1xeXBkeFxlZ2P/2wBDARESEhgVGC8aGi9jQjhCY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2NjY2P/wgARCAAUABQDASIAAhEBAxEB/8QAGAABAAMBAAAAAAAAAAAAAAAAAAIDBQT/xAAWAQEBAQAAAAAAAAAAAAAAAAAAAgP/2gAMAwEAAhADEAAAAboK870hU4HaFoP/xAAbEAEBAQACAwAAAAAAAAAAAAACAQMABBEhMv/aAAgBAQABBQLZ0DJXzzsfOHtcqtrVlGqp/8QAFBEBAAAAAAAAAAAAAAAAAAAAIP/aAAgBAwEBPwEf/8QAFREBAQAAAAAAAAAAAAAAAAAAASD/2gAIAQIBAT8BY//EAB0QAAICAQUAAAAAAAAAAAAAAAEhABEQAhIxQVH/2gAIAQEABj8CXJgvXuvA9nWLJcsJAqOf/8QAGxAAAgMBAQEAAAAAAAAAAAAAAREAIUFREDH/2gAIAQEAAT8hEPkifIrIYPgAmwaHZUKpzPAcw4PIYWoDkjn/2gAMAwEAAgADAAAAEDvXff/EABYRAQEBAAAAAAAAAAAAAAAAAAEQEf/aAAgBAwEBPxADGE//xAAWEQEBAQAAAAAAAAAAAAAAAAARARD/2gAIAQIBAT8QTDLn/8QAHRABAQEBAAIDAQAAAAAAAAAAAREAITFxQVFhof/aAAgBAQABPxBERBosSrNWnl4U/SabyrrjY+eesU1Qqo7Xg1wnR1H+PrIYPUA6nfZ3SAwyyXf/2Q==","aspectRatio":1,"src":"/static/d7bbad08c257f3987a4a5710553e9e17/bdd4d/Rajah.jpg","srcSet":"/static/d7bbad08c257f3987a4a5710553e9e17/2b9ee/Rajah.jpg 80w,\n/static/d7bbad08c257f3987a4a5710553e9e17/e5d64/Rajah.jpg 160w,\n/static/d7bbad08c257f3987a4a5710553e9e17/bdd4d/Rajah.jpg 320w,\n/static/d7bbad08c257f3987a4a5710553e9e17/6e63d/Rajah.jpg 400w","sizes":"(max-width: 320px) 100vw, 320px"}}}},"tags":["Long Form","Dividends","Corporation","Tax","Corporate Finance","Rajah"]}}},"pageContext":{"slug":"/when-should-a-company-declare-dividends/","previous":{"fields":{"slug":"/blog-bite-will-alabama-enforce-choice-of-law-provisions/"},"frontmatter":{"title":"Blog Bite: Will Alabama enforce choice of law provisions?","tags":["Governing Law","Mondaq","Learn","USA"],"author":{"id":"alina@clausehound.com","first":"Alina","last":null}}},"next":{"fields":{"slug":"/jv-parties-must-develop-comprehensive-background-ip-protection-strategy/"},"frontmatter":{"title":"JV Parties Must Develop Comprehensive Background IP Protection Strategy","tags":["Intellectual Property","Proprietary Rights","Licence Restrictions","Grant of Licence","Commercial Activities","Rajah"],"author":{"id":"rajah@cobaltcounsel.com","first":"Rajah","last":"Lehal"}}}}}}