Income Tax Act — I-3.3 84
capital (4.1) Any amount paid by a public corporation on the reduction of the paid-up capital in respect of any class of shares of its capital stock, otherwise than by way of a redemption, acquisition or cancellation of any shares of that class or by way of a transaction described in subsection (2) or section 86, is deemed to have been paid by the corporation and received by the person to whom it was paid, as a dividend, unless (a) the amount may reasonably be considered to be derived from proceeds of disposition realized by the public corporation, or by a person or partnership in which the public corporation had a direct or indirect interest at the time that the proceeds were realized, from a transaction that occurred (i) outside the ordinary course of the business of the corporation, or of the person or partnership that realized the proceeds, and (ii) within the period that commenced 24 months before the payment; and (b) no amount that may reasonably be considered to be derived from those proceeds was paid by the public corporation on a previous reduction of the paid-up capital in respect of any class of shares of its capital stock. Deemed dividend on term preferred share (4.2) Where, at any time after November 16, 1978, the paid-up capital in respect of a term preferred share owned by a shareholder that is (a) a specified financial institution, or (b) a partnership or trust of which a specified financial institution or a person related to such an institution was a member or a beneficiary, was reduced otherwise than by way of a redemption, acquisition or cancellation of the share or of a transaction described in subsection 84(2) or (4.1), the amount received by the shareholder on the reduction of the paid-up capital in respect of the share shall be deemed to be a dividend received by the shareholder at that time unless the share was not acquired in the ordinary course of the business carried on by the shareholder. Deemed dividend on guaranteed share (4.3) Where at any time after 1987 the paid-up capital in respect of a share of the capital stock of a particular corporation owned (a) by a shareholder that is another corporation to which subsection 112(2.2) or (2.4) would, if the particular corporation were a taxable Canadian corporation, apply to deny the deduction under subsection 112(1) or (2) or 138(6) of a dividend received on the share, or (b) by a partnership or trust of which the other corporation is a member or beneficiary, as the case may be, was reduced otherwise than by way of a redemption, acquisition or cancellation of the share or of a transaction described in subsection 84(2) or (4.1), the amount received by the shareholder on the reduction of the paid-up capital in respect of the share shall be deemed to be a dividend received by the shareholder at that time. Amount distributed or paid where a share (5) Where (a) the amount of property distributed by a corporation or otherwise appropriated to or for the benefit of its shareholders as described in paragraph 84(2)(a), or (b) the amount paid by a corporation as described in paragraph 84(3)(a) or (4)(a), includes a share of the capital stock of the corporation, for the purposes of subsections 84(2) to (4) the following rules apply: (c) in computing the amount referred to in paragraph 84(5)(a) at any time, the share shall be valued at an amount equal to its paid-up capital at that time, and (d) in computing the amount referred to in paragraph 84(5)(b) at any time, the share shall be valued at an amount equal to the amount by which the paid-up capital in respect of the class of shares to which it belongs has increased by virtue of its issue. Where s. (2) or (3) does not apply (6) Subsection 84(2) or (3), as the case may be, is not applicable (a) in respect of any transaction or event, to the extent that subsection 84(1) is applicable in respect of that transaction or event; and (b) in respect of any purchase by a corporation of any of its shares in the open market,