Income Tax Act

Marginal note:Deemed dividend on term preferred share

• 258 (2) Notwithstanding subsection 15(3), an amount paid or payable after 1978 as interest on or as an amount in lieu of interest in respect of

  • (a) any interest or dividend payable after November 16, 1978 on an income bond or an income debenture issued before November 17, 1978 or pursuant to an agreement in writing made before that date, or

  • (b) a dividend that became payable or in arrears after November 16, 1978 on a share of the capital stock of a corporation that is not a term preferred share by reason of having been issued before November 17, 1978 or pursuant to an agreement in writing made before that date,

  shall, for the purposes of subsections 112(2.1) and 138(6), be deemed to be a dividend received on a term preferred share.

• Marginal note:Deemed interest on preferred shares

  (3) Subject to subsection 258(4), for the purposes of paragraphs 12(1)(c) and 12(1)(k) and sections 113 and 126, each amount that is a dividend received in a taxation year on

  • (a) a term preferred share by a specified financial institution resident in Canada from a corporation not resident in Canada, or

  • (b) any other share that

    • (i) is a grandfathered share, or

    • (ii) was issued before 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 and is not deemed by subsection 112(2.22) to have been issued after that time

    by a corporation from a corporation not resident in Canada, if the dividend would have been a dividend in respect of which no deduction could have been made under subsection 112(1) or 112(2) or 138(6) because of subsection 112(2.2) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read on June 17, 1987, if the corporation that paid the dividend were a taxable Canadian corporation

  shall be deemed to be interest received in the year and not a dividend received on a share of the capital stock of a corporation.

• Marginal note:Exception

  (4) Subsection (3) does not apply to a dividend described in paragraph (3)(a)

  • (a) if the share on which the dividend was paid was not acquired in the ordinary course of the business carried on by the corporation; or

  • (b) to the extent that the dividend would be described by subparagraph 53(2)(b)(ii) if the corporation not resident in Canada were not a foreign affiliate of the corporation.

• Marginal note:Deemed interest on certain shares

  (5) For the purposes of paragraphs 12(1)(c) and 12(1)(k) and sections 113 and 126, a dividend received after June 18, 1987 and in a taxation year from a corporation not resident in Canada, other than a corporation in which the recipient had or would have, if the corporation were a taxable Canadian corporation, a substantial interest (within the meaning assigned by section 191), on a share, if the dividend would have been a dividend in respect of which no deduction could have been made under subsection 112(1) or 112(2) or 138(6) by reason of subsection 112(2.2) or 112(2.4) if the corporation that paid the dividend were a taxable Canadian corporation, shall be deemed to be interest received in the year and not a dividend received on a share of the capital stock of the payer corporation.

• Marginal note:Exception

  (6) Subsection (5) does not apply to a dividend described in that subsection to the extent that the dividend would be described by subparagraph 53(2)(b)(ii) if the corporation not resident in Canada were not a foreign affiliate of the recipient.