The deemed-dividend rule in subsection 84 2 doesn't apply if: 1 subsection 84 1 applies to the same transaction; or 2 the corporation's share purchase for cancellation was an open-market transaction.
Under subsection 84 2upon the corporation's liquidation or winding up, any property or cash distributed to a shareholder in excess of a share's PUC is deemed a dividend.
But public corporations can only distribute a tax-free return of capital in limited circumstances. Subsection 84 3 deems the shareholder to have received a dividend to the extent that the redemption proceeds exceeded the share's PUC.
Transactions entered into before 4 December will continue to be subject to the previous law. Further, like conventional inter-corporate dividends, a deemed dividend from one corporation to another is fully deductible for the recipient under subsection 1 of the Income Tax Act.
And, like stated capital, PUC is an attribute of each issued corporate share. Deemed Dividend Upon Winding Up: Subsection 84 2 When a corporation is wound up or liquidated, its assets are sold, liabilities paid, and the remaining cash is distributed to the shareholders thus canceling their shares.
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