• Types of benefits that are covered under section 47A

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    The following seven types of benefits provided by a CFC could be treated as dividends:

    • the waiver by the CFC of a debt owed by another entity
    • the grant by the CFC of a non-arm's length loan to another entity
    • the grant by the CFC of a loan - whether at arm's length or not - to another entity to facilitate, directly or indirectly, the payment by that entity of a dividend that would be either:
      • non-assessable non-exempt income or
      • an exempting receipt of an unlisted country company
       
    • the transfer by the CFC to another entity of property or services for no consideration, or for inadequate consideration
    • a payment made by the CFC for allotment of:
      • shares in a company
      • rights or options to acquire shares
      • units in a unit trust, or
      • rights or options to acquire units - see below
       
    • a payment made by the CFC in respect of calls on shares in another company - see below
    • the grant by the CFC of a loan - whether at arm's length or not - to another entity to facilitate a transaction of the type referred to in any of the above points.

    Treat the fifth and sixth types of payments as dividends only if:

    • a shareholder of the CFC - or shareholder's associate - holds any direct interest, or later acquires any direct interest, in any of the shares of the company in which the CFC acquired shares or in the unit trust in which the units were acquired or
    • the company - or unit trust - uses the proceeds of the issue to facilitate a transaction providing any of the above types of benefits.
    Last modified: 05 Dec 2006QC 17522