Budget 2015 – "Surplus Stripping" Anti-Avoidance Rule Amended

Section 55 of the Income Tax Act (Canada) (the "Tax Act") contains an anti-avoidance rule that prevents a corporation from converting what would otherwise be a taxable capital gain into a tax-free inter-corporate dividend. Section 55 deems a dividend not to be a dividend, but rather a capital gain, where the purpose of the dividend, or its effect in the case of a share purchase or a redemption, is to reduce the capital gain that would otherwise have been realized if the share had been sold for its fair market value. The rule has two important exceptions – it does not apply to dividends that are paid out of taxable income (usually called "safe income") that has been earned by a corporation after 1971 and before the date of the dividend, and it does not apply to dividends paid in the course of a series of transactions or a corporate reorganization where no property or shares are acquired by persons who were not related to the owner of the corporate group before