Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

PART IVTax on Taxable Dividends Received by Private Corporations

Marginal note:Tax on assessable dividends

• 186 (1) Every corporation (in this section referred to as the “particular corporation”) that is at any time in a taxation year a private corporation or a subject corporation shall, on or before its balance-due day for the year, pay a tax under this Part for the year equal to the amount, if any, by which the total of

  • (a) 38 1/3% of all assessable dividends received by the particular corporation in the year from corporations other than payer corporations connected with it, and

  • (b) all amounts, each of which is an amount in respect of an assessable dividend received by the particular corporation in the year from a private corporation or a subject corporation that was a payer corporation connected with the particular corporation, equal to that proportion of the payer corporation’s dividend refund (within the meaning assigned by paragraph 129(1)(a)) for its taxation year in which it paid the dividend that

    • (i) the amount of the dividend received by the particular corporation

    is of

    • (ii) the total of all taxable dividends paid by the payer corporation in its taxation year in which it paid the dividend and at a time when it was a private corporation or a subject corporation

  exceeds 38 1/3% of the total of

  • (c) such part of the particular corporation’s non-capital loss and farm loss for the year as it claims, and

  • (d) such part of the particular corporation’s

    • (i) non-capital loss for any of its 20 taxation years immediately preceding or 3 taxation years immediately following the year, and

    • (ii) farm loss for any of its 20 taxation years immediately preceding or 3 taxation years immediately following the year

    as it claims, not exceeding the portion thereof that would have been deductible under section 111 in computing its taxable income for the year if subparagraph 111(3)(a)(ii) were read without reference to the words “the particular taxation year and” and if the corporation had sufficient income for the year.

• Marginal note:Reduction where Part IV.1 tax payable

  (1.1) Notwithstanding subsection 186(1), where an assessable dividend was received by a corporation in a taxation year and was included in an amount in respect of which tax under Part IV.1 was payable by the corporation for the year, the tax otherwise payable under this Part by the corporation for the year shall be reduced

  • (a) where the assessable dividend is described in paragraph 186(1)(a), by 10% of the assessable dividend, and

  • (b) where the assessable dividend is described in paragraph 186(1)(b), by 30% of the amount determined under that paragraph in respect of the assessable dividend.

• Marginal note:When corporation controlled

  (2) For the purposes of this Part, other than for the purpose of determining whether a corporation is a subject corporation, one corporation is controlled by another corporation if more than 50% of its issued share capital (having full voting rights under all circumstances) belongs to the other corporation, to persons with whom the other corporation does not deal at arm’s length, or to the other corporation and persons with whom the other corporation does not deal at arm’s length.

• Marginal note:Definitions

  (3) The definitions in this subsection apply in this Part.

  assessable dividend

  assessable dividend means an amount received by a corporation at a time when it is a private corporation or a subject corporation as, on account of, in lieu of payment of or in satisfaction of, a taxable dividend from a corporation, to the extent of the amount in respect of the dividend that is deductible under section 112, paragraph 113(1)(a), (a.1), (b) or (d) or subsection 113(2) in computing the recipient corporation’s taxable income for the year. (dividende imposable déterminé)

  subject corporation

  subject corporation means a corporation (other than a private corporation) resident in Canada and controlled, whether because of a beneficial interest in one or more trusts or otherwise, by or for the benefit of an individual (other than a trust) or a related group of individuals (other than trusts). (société assujettie)

• Marginal note:Corporations connected with particular corporation

  (4) For the purposes of this Part, a payer corporation is connected with a particular corporation at any time in a taxation year (in this subsection referred to as the “particular year”) of the particular corporation if

  • (a) the payer corporation is controlled (otherwise than by virtue of a right referred to in paragraph 251(5)(b)) by the particular corporation at that time; or

  • (b) the particular corporation owned, at that time,

    • (i) more than 10% of the issued share capital (having full voting rights under all circumstances) of the payer corporation, and

    • (ii) shares of the capital stock of the payer corporation having a fair market value of more than 10% of the fair market value of all of the issued shares of the capital stock of the payer corporation.

• Marginal note:Deemed private corporation

  (5) A corporation that is at any time in a taxation year a subject corporation shall, for the purposes of paragraph 87(2)(aa) and section 129, be deemed to be a private corporation at that time, except that its non-eligible refundable dividend tax on hand (as defined in subsection 129(4)) at the end of the year shall be determined without reference to paragraph (a) of that definition.

• Marginal note:Partnerships

  (6) For the purposes of this Part,

  • (a) all amounts received in a fiscal period by a partnership as, on account or in lieu of payment of, or in satisfaction of, taxable dividends shall be deemed to have been received by each member of the partnership in the member’s fiscal period or taxation year in which the partnership’s fiscal period ends, to the extent of that member’s share thereof; and

  • (b) each member of a partnership shall be deemed to own at any time that proportion of the number of the shares of each class of the capital stock of a corporation that are property of the partnership at that time that the member’s share of all dividends received on those shares by the partnership in its fiscal period that includes that time is of the total of all those dividends.

• Marginal note:Interpretation

  (7) For greater certainty, where a provision of this Act or the regulations indicates that the term connected has the meaning assigned by subsection 186(4), that meaning shall be determined by taking into account the application of subsection 186(2) unless the provision expressly provides otherwise.

Marginal note:Exempt corporations

186.1 No tax is payable under this Part for a taxation year by a corporation

• (a) that was, at any time in the year, a bankrupt; or

• (b) that was, throughout the year,

  • (i) a bank,

  • (ii) a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as a trustee,

  • (iii) an insurance corporation,

  • (iv) a prescribed labour-sponsored venture capital corporation,

  • (v) a prescribed investment contract corporation,

  • (vi) a non-resident-owned investment corporation, or

  • (vii) a registered securities dealer that was throughout the year a member, or a participating organization, of a designated stock exchange in Canada.

Marginal note:Exempt dividends

186.2 For the purposes of subsection 186(1), dividends received in a taxation year by a corporation that was, throughout the year, a prescribed venture capital corporation from a corporation that was a prescribed qualifying corporation with respect to those dividends shall be deemed not to be taxable dividends.

Marginal note:Information return

• 187 (1) Every corporation that is liable to pay tax under this Part for a taxation year in respect of a dividend received by it in the year shall, on or before the day on or before which it is required to file its return of income under Part I for the year, file a return for the year under this Part in prescribed form.

• Marginal note:Interest

  (2) Where a corporation is liable to pay tax under this Part and has failed to pay all or any part thereof on or before the day on or before which the tax was required to be paid, it shall pay to the Receiver General interest at the prescribed rate on the amount that it failed to pay computed from the day on or before which the tax was required to be paid to the day of payment.

• Marginal note:Provisions applicable to Part

  (3) Sections 151, 152, 158 and 159, subsections 161(7) and 161(11), sections 162 to 167 and Division J of Part I are applicable to this Part with such modifications as the circumstances require.

PART IV.1Taxes on Dividends on Certain Preferred Shares Received by Corporations

Definition of excepted dividend

187.1 In this Part, excepted dividend means a dividend

• (a) received by a corporation on a share of the capital stock of a foreign affiliate of the corporation, other than a dividend received by a specified financial institution on a share acquired in the ordinary course of the business carried on by the institution;

• (b) received by a corporation from another corporation (other than a corporation described in any of paragraphs (a) to (f) of the definition financial intermediary corporation in subsection 191(1)) in which it has or would have, if the other corporation were a taxable Canadian corporation, a substantial interest (as determined under section 191) at the time the dividend was paid;

• (c) received by a corporation that was, at the time the dividend was received, a private corporation or a financial intermediary corporation (within the meaning assigned by subsection 191(1));

• (d) received by a corporation on a short-term preferred share of the capital stock of a taxable Canadian corporation other than a dividend described in paragraph (b) or (c) of the definition excluded dividend in subsection 191(1); or

• (e) received by a corporation on a share (other than a taxable RFI share or a share that would be a taxable preferred share if the definition taxable preferred share in subsection 248(1) were read without reference to paragraph (a) of that definition) of the capital stock of a mutual fund corporation.

Marginal note:Tax on dividends on taxable preferred shares

187.2 Every corporation shall, on or before its balance-due day for a taxation year, pay a tax under this Part for the year equal to 10% of the total of all amounts each of which is a dividend, other than an excepted dividend, received by the corporation in the year on a taxable preferred share (other than a share of a class in respect of which an election under subsection 191.2(1) has been made) to the extent that an amount in respect of the dividend was deductible under section 112 or 113 or subsection 138(6) in computing its taxable income for the year or under subsection 115(1) in computing its taxable income earned in Canada for the year.

Marginal note:Tax on dividends on taxable RFI shares

• 187.3 (1) Every restricted financial institution shall, on or before its balance-due day for a taxation year, pay a tax under this Part for the year equal to 10% of the total of all amounts each of which is a dividend, other than an excepted dividend, received by the institution at any time in the year on a share acquired by any person before that time and after 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 that was, at the time the dividend was paid, a taxable RFI share to the extent that an amount in respect of the dividend was deductible under section 112 or 113 or subsection 138(6) in computing its taxable income for the year or under subsection 115(1) in computing its taxable income earned in Canada for the year.

• Marginal note:Time of acquisition of share

  (2) For the purposes of subsection 187.3(1),

  • (a) a share of the capital stock of a corporation acquired by a person after 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 pursuant to an agreement in writing entered into before that time shall be deemed to have been acquired by that person before that time;

  • (b) a share of the capital stock of a corporation acquired by a person after 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 and before 1988 as part of a distribution to the public made in accordance with the terms of a prospectus, preliminary prospectus, registration statement, offering memorandum or notice filed before 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 with a public authority pursuant to and in accordance with the securities legislation of the jurisdiction in which the shares are distributed shall be deemed to have been acquired by that person before that time;

  • (c) a share (in this paragraph referred to as the “new share”) of the capital stock of a corporation that is acquired by a person after 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 in exchange for

    • (i) a share of a corporation that was issued before 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 or is a grandfathered share, or

    • (ii) a debt obligation of a corporation that was issued before 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987, or issued after that time pursuant to an agreement in writing entered into before that time,

    where the right to the exchange for the new share and all or substantially all the terms and conditions of the new share were established in writing before that time shall be deemed to have been acquired by that person before that time;

  • (d) a share of a class of the capital stock of a Canadian corporation listed on a designated stock exchange in Canada that is acquired by a person after 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 on the exercise of a right

    • (i) that was issued before that time and listed on a prescribed stock exchange in Canada, and

    • (ii) the terms of which at that time included the right to acquire the share,

    where all or substantially all the terms and conditions of the share were established in writing before that time shall be deemed to have been acquired by that person before that time;

  • (e) where a share that was owned by a particular restricted financial institution at 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 has, by one or more transactions between related restricted financial institutions, been transferred to another restricted financial institution, the share shall be deemed to have been acquired by the other restricted financial institution before that time unless at any particular time after 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 and before the share was transferred to the other restricted financial institution the share was owned by a shareholder who, at that particular time, was a person other than a restricted financial institution related to the other restricted financial institution; and

  • (f) where, at any particular time, there has been an amalgamation within the meaning assigned by section 87, and

    • (i) each of the predecessor corporations was a restricted financial institution throughout the period from 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 to the particular time and the predecessor corporations were related to each other throughout that period, or

    • (ii) each of the predecessor corporations and the new corporation is a corporation described in any of paragraphs (a) to (d) of the definition restricted financial institution in subsection 248(1),

    a taxable RFI share acquired by the new corporation from a predecessor corporation on the amalgamation shall be deemed to have been acquired by the new corporation at the time it was acquired by the predecessor corporation.