Manu Kakkar, Alex Ghani and Boris Volvofsky, in “Corporate Attribution: Refreeze May Cause Unsolvable Corporate Attribution Problem” 18:3 Tax for the Owner-Manager (July, 2018), argue that a refreeze at a lower value does not reduce the outstanding amount for the purposes of section 74.4 of the Income Tax Act (Canada). As a result, if the re-freeze shares are later redeemed, there is a “phantom” outstanding amount on which a 74.4 deemed income amount must be calculated. The corporate issuer, however, can no longer pay dividends to the freezor to reduce or eliminate the deemed income.
The Tax Court continues to be unimpressed by clever planning. Brian Arnold thinks that the current generation of tax judges is much more willing to apply the GAAR or other anti-avoidance rules to planning that reduces tax. Mady v R, 2017 TCC 112, is another case that supports his thesis. Continue reading