The Part VI.1 tax rules, which date from the late 1980s, can apply in unexpected and unhelpful ways to transactions that have nothing to do with the harm at which the rules were aimed. (The Department of Finance, in other words, has a long history of inflicting collateral damage on unsuspecting bystanders.) The author provides an overview of the exceptions to Part VI.1 tax, which include substantial interests, specified amounts under subsection 191(4) and the dividend allowance. Each of the exceptions, however, has important limits:
- Paragraph 191(3)(d) deems partnerships and trusts not to have a substantial interest in corporations subject only to three relatively narrow exceptions.
- Taxpayers who were related to the issuer for the purposes of the substantial interest test might become unrelated long after shares were issued.
- Shares issued via a stock dividend do not have a specified amount for the purposes of subsection 191(4) because they are not issued for consideration.
- Common shares can be taxable preferred shares because of the terms of shareholder agreements, share purchase agreements and “tracking arrangements” (ie share provisions that track different parts of the retained earnings of a corporation).
Dino Infanti “Navigating Part VI.1 Tax Pitfalls” Tax for the Owner-Manager 26:3 (July 2026)
