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ARTICLE · 27 OCTOBER 2025

Can Common Shares Trigger Part VI.1 Tax? Key Risks Hidden In Shareholder Agreements

Miller Thomson
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Part VI.1 tax under the Income Tax Act is often described as a "trap for the unwary" because it can apply unexpectedly and at a steep rate.

CanadaTax
Joan Jung
Joan Jung
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Part VI.1 tax under the Income Tax Act is often described as a "trap for the unwary" because it can apply unexpectedly and at a steep rate. This 25% tax is levied on the corporation paying the dividend, not the recipient, and is calculated based on the dividend amount rather than annual taxable income.

For business owners, this means that a misstep in structuring a shareholders' agreement could expose the company to significant liability. Understanding how "taxable preferred share" rules operate is therefore essential to avoid inadvertent exposure.

What is Part VI.1 Tax and why does it matter?

Part VI.1 tax applies to dividends paid on a "taxable preferred share," a term that is broader than many expect. It can extend beyond what corporate law traditionally considers a preferred share.

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