February 2016

The CRA recently published a severed letter in which it considered the applicability of subsection 74.4(2) to two scenarios involving the payment of dividends from a small business corporation to a holding company, for the benefit of “designated persons”. Generally, subsection 74.4(2) applies to a transfer or loan of property made, directly or indirectly, by an individual to a corporation that is not a small business corporation, if it is reasonable to consider that one of the main purposes of the transfer is to reduce the individual’s income and benefit, directly or indirectly, someone who qualifies as a “designated person” in respect of the individual (e.g. a minor child or spouse). ….