I-3 - Taxation Act

Section 1106 Disposition versions

2017-12-07

1106. Where at any particular time a dividend becomes payable by a corporation that is an investment corporation throughout the taxation year during which the dividend becomes payable, the corporation may elect in prescribed manner, in respect of the full amount of the dividend, that the following rules apply:

(a)  the dividend is deemed to be a capital gains dividend payable out of the corporation’s capital gains dividend account, within the meaning of the regulations, to the extent that it does not exceed the corporation’s capital gains dividend account at that time;

(b)  despite any other provision of this Act, where an amount is received by a taxpayer in a taxation year as the dividend, the amount

i.  shall not be included in computing the taxpayer’s income for the year as income from a share of the capital stock of the corporation, and

ii.  is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year.

1972, c. 23, s. 829; 1974, c. 18, s. 40; 1976, c. 18, s. 21; 1982, c. 5, s. 204; 1988, c. 4, s. 143; 1990, c. 59, s. 356; 1994, c. 22, s. 339; 1996, c. 39, s. 262; 1997, c. 3, s. 71; 2003, c. 2, s. 288; 2017, c. 29, s. 206.

2006-03-01

1106. Where at any particular time a dividend becomes payable by a corporation that is an investment corporation throughout the taxation year during which the dividend becomes payable, the corporation may elect in prescribed manner, in respect of the full amount of the dividend, that the following rules apply:

(a)  the dividend is deemed to be a capital gains dividend payable out of the corporation’s capital gains dividend account, within the meaning of the regulations, to the extent that it does not exceed the corporation’s capital gains dividend account at that time;

(b)  notwithstanding any other provision of this Act, no amount received in a taxation year by a taxpayer as the dividend shall be included in computing the taxpayer’s income for the year as income from a share of the capital stock of the corporation, but

i.  where the dividend is in respect of capital gains of the corporation from dispositions of property that occurred before 28 February 2000, and the taxation year of the taxpayer includes 27 February 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year and before 28 February 2000,

ii.  where the dividend is in respect of capital gains of the corporation from dispositions of property that occurred before 28 February 2000, and the taxation year of the taxpayer began after 27 February 2000 and ended before 18 October 2000, 9/8 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

iii.  where the dividend is in respect of capital gains of the corporation from dispositions of property that occurred before 28 February 2000, and the taxation year of the taxpayer began after 17 October 2000, 3/2 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

iv.  where the dividend is in respect of capital gains of the corporation from dispositions of property that occurred before 28 February 2000 and the taxation year of the taxpayer began after 27 February 2000 and ended after 17 October 2000, 9/8 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the year and before 18 October 2000,

v.  where the dividend is in respect of capital gains of the corporation from dispositions of property that occurred after 27 February 2000 but before 18 October 2000, and the taxation year of the taxpayer began after 17 October 2000, 4/3 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

vi.  where the dividend is in respect of capital gains of the corporation from dispositions of property that occurred after 27 February 2000 but before 18 October 2000, and the taxation year of the taxpayer includes 17 October 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year and in the period that began after 27 February 2000 and ended before 18 October 2000,

vii.  where the dividend is in respect of capital gains of the corporation from dispositions of property that occurred after 27 February 2000 but before 17 October 2000, and the taxation year of the taxpayer began after 27 February 2000 and ended before 18 October 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year, and

viii.  in any other case, the dividend is deemed to be a capital gain of the taxpayer from the disposition of capital property in the year and after 17 October 2000.

For the purposes of subparagraph b of the first paragraph, the following rules apply:

(a)  dividends paid by a corporation are deemed to be paid in respect of the corporation’s net capital gains in the order in which those net capital gains were realized by the corporation; and

(b)  capital gains redemptions, within the meaning of subsection 6 of section 131 of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement), are deemed to be made in respect of net capital gains in the order in which those net capital gains were realized by the corporation to the extent that they are not reduced by dividends.

For the purposes of the second paragraph, the following rules apply:

(a)  net capital gains of a corporation for a year is the amount by which the corporation’s capital gains from dispositions of property in the year exceed the corporation’s capital losses from dispositions of property in the year;

(b)  net capital losses of a corporation for a year is the amount by which the corporation’s capital losses from dispositions of property in the year exceed the corporation’s capital gains from dispositions of property in the year;

(c)  net capital gains of a corporation for a year are deemed to be realized evenly throughout the year, and

(d)  net capital losses of a corporation for a year are deemed to be a capital loss of the corporation from the disposition of property in the following year.

1972, c. 23, s. 829; 1974, c. 18, s. 40; 1976, c. 18, s. 21; 1982, c. 5, s. 204; 1988, c. 4, s. 143; 1990, c. 59, s. 356; 1994, c. 22, s. 339; 1996, c. 39, s. 262; 1997, c. 3, s. 71; 2003, c. 2, s. 288.