Income Tax Act

Marginal note:Application of Part

• 183.1 (1) This Part applies to a corporation (other than a mutual fund corporation) for a taxation year in which the corporation, at any time in the year,

  • (a) was a public corporation; or

  • (b) was resident in Canada and had a class of shares outstanding that were purchased and sold in the manner in which such shares normally are purchased and sold by any member of the public in the open market.

• Marginal note:Tax payable

  (2) Where, as a part of a transaction or series of transactions or events,

  • (a) a corporation, or any person with whom the corporation was not dealing at arm’s length, has, at any time, paid an amount, directly or indirectly, to any person as proceeds of disposition of any property, and

  • (b) all or any portion of the amount may reasonably be considered, having regard to all the circumstances, to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation,

  the corporation shall, on or before its balance-due day for its taxation year that includes that time, pay tax of 45% of that amount or portion of it, as the case may be.

• Marginal note:Stock dividend

  (3) Where, as a part of a transaction or series of transactions or events,

  • (a) a share was issued by a corporation as a stock dividend and the amount of the stock dividend was less than the fair market value of the share at the time that it was issued, and

  • (b) the share or any other share of the capital stock of the corporation was purchased, directly or indirectly, by the corporation, or by a person with whom the corporation was not dealing at arm’s length, for an amount in excess of its paid-up capital,

  that excess shall, for the purposes of subsection 183.1(2), be deemed to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation.

• Marginal note:Purchase of shares

  (4) Where, as a part of a transaction or series of transactions or events,

  • (a) a share of the capital stock of a corporation was purchased, directly or indirectly, by the corporation, or by any person with whom the corporation was not dealing at arm’s length, and

  • (b) any portion of the amount paid for the share may reasonably be considered, having regard to all the circumstances, as consideration for a dividend that had been declared, but not yet paid, on the share,

  that portion of the amount shall, for the purposes of subsection 183.1(2), be deemed to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation notwithstanding that the dividend was actually paid thereafter.

• Marginal note:Indirect payment

  (5) Where, as a part of a transaction or series of transactions or events, a person received a payment from a corporation, or from any person with whom the corporation was not dealing at arm’s length, in consideration, in whole or in part, for paying an amount to any other person as proceeds of disposition of any property, the corporation shall, for the purposes of subsection 183.1(2), be deemed to have paid the amount indirectly to the other person.

• Marginal note:Where s. (2) does not apply

  (6) Subsection 183.1(2) does not apply if none of the purposes of the transaction or series of transactions or events referred to therein may reasonably be considered, having regard to all the circumstances, to have been to enable shareholders of a corporation who are individuals or non-resident persons to receive an amount, directly or indirectly, as proceeds of disposition of property rather than as a dividend on a share that was of a class that was listed on a stock exchange or that was purchased and sold in the manner in which shares are normally purchased and sold by any member of the public in the open market.

• Marginal note:Where s. 110.6(8) does not apply

  (7) Where this section has been applied in respect of an amount, subsection 110.6(8) does not apply to the capital gain in respect of which the amount formed all or a part of the proceeds of disposition.