Michael Goldberg, BComm, LLB, TEP, FEA, Partner, Tax Lawyer, Minden Gross LLP, Limit the Ability To MERITAS Law Firms Worldwide and founder of "Tax Talk with Michael Goldberg", a Pay Future CDA quarterly conference call about current, relevant, and real life situations for Dividends professional advisors who serve high net worth clients.

Recently, I published a short note on LinkedIn1 with a list of some recessionary planning Excess CDA tools and strategies that advisors may wish to consider using to assist their clients in Dividends — these difficult times. In that short note I also mentioned I was hoping to write about Part III some of those ideas. This three-part series2 (the "Series") is part of my effort at Tax ................. . 3 following through on my good intentions.

In particular, the Series has been designed to encourage advisors to strategically plan Some Best corporate loss transactions to enable their clients to maximize the tax-free benefits of Practices ........... . 3 the Capital Dividend Account ("CDA").3 As the Series progresses, the discussion will progress from a review of the most basic principles to more advanced planning Finding Capital concepts. Part I of the Series reviewed gain and loss taxation at its most basic, and it Gains and/or also reviewed certain key aspects of the CDA relevant to the Series theme, including Capital Losses ..... . 3 what I refer to as Strategic CDA Planning. This Part II of the Series will flesh out a number of other relevant CDA matters and introduce what I refer to as a 4C Strategy. COVID-19 Update Finally, Part III of the Series will review some strategies to enhance Strategic CDA 4 Planning and also discuss a few cautions.

Negative NCG Pool May Not Restrict CDA Dividends

Depending on timing, the net capital gains pool ("NCG Pool") of a corporation can be in a negative balance. While the NCG Pool is in a negative balance it will not be possible to pay CDA Dividends out of the CDA from the NCG Pool.

However, a negative NCG Pool balance will not necessarily restrict a corporation's ability to declare CDA Dividends. This is because each CDA pool is calculated and tracked separately from each other CDA pool, and when aggregating the CDA pools any particular CDA pool in a negative balance is treated as having a balance of nil.4

As this concept is complex, it will be illustrated by way of example using the facts for Mr. Wise and Holdco discussed in Part I of the Series with a couple of changes. Assume that Holdco and the investment advisor didn't consult you, its tax advisor, and liquidated all of the securities in loss positions realizing $1,000,000 of capital losses. Holdco's NCG Pool would be calculated as 50% of the realized capital losses, or negative $500,000.

In addition to the original facts, assume that a $900,000 life insurance policy owned by Holdco matured and that the full $900,000 of life insurance proceeds are capable of being added to the Insurance Pool. In this case, because the NCG Pool balance, which would otherwise be negative $500,000, is deemed to be nil, the aggregate of the corporation's CDA pools will be $900,000. Consequently, on the basis of Holdco's facts, Holdco would have an available CDA balance out of which to distribute CDA Dividends of $900,000.

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1 https://www.linkedin.com/posts/ magoldberg_tax-planning-in-recessionary-times-michael-activity-6685984129349234688-sivQ

2 Unless otherwise noted, defined terms in this article have the meaning designated in Part I of the Series.

3 I often refer to the process of taking tax lemons (for example, capital losses) and making them into something positive (for example, maximizing the benefits of the CDA) as making tax lemonade.

4 Pursuant to section 257 of the Income Tax Act (Canada) R.S.C. 1985 Ch .1 (5th Supp.), as amended (the "Act"), unless otherwise specifically provided negative calculations determined under the Act are treated as nil. Unless otherwise noted all statutory references are to the Act

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