I have a new client - his holdco owns 50% of opco (his brother’s holdco owns the other 50%)…opco paid a safe income dividend of $250K to each of the holdcos. Opco retained earning are well over the $500K in dividends and there is no other pending transactions as to selling the business or anything else…they are making an inter corporate dividend to transfer cash to the holdcos to purchase a building.
I am getting confused as to how to report this in taxcycle T2 Schedule 3 for the Opco: the payment of a dividend to a connected company.
And while we are at it, how would you report it in taxcycle for the holdco?
Opco: Part 3 of Schedule 3, Fields 400, 410, 420, and 430
Holdco: Part 1 of Schedule 3, Fields 200 to 275
You need to be careful if the dividends paid to the Holdco’s trigger any RDTOH to Opco
You also “should” have a calculation of “safe income” as the CRA does not necessarily accept Retained Earnings as an indicator of safe income. They generally want you to provide calculations if the dividends are audited.
Thanks for the quick reply - when I enter opco info into the fields you advise, it is asking for the Q.1 field to be populated - this is the part that is confusing me…the GRIP balance is being drawn down and the portion over the GRIP amount is being calculated as excessive dividends and S55 is calculating Part III.1 tax.
Safe income calculation shows S1Net income for tax purposes by year from start of business (14 years) less Pat I and Provincial tax - does that suffice as having a calculation?
If you have GRIP then the amount that you manually enter on line Q.1 of Schedule 3 would be no greater than Line 160 of Schedule 55. You still enter the total dividend on line 430 ® on Schedule 3. You are to input Q.1 and this figure is included in R (line 430).
You are entitled to pay these out as Eligible Dividends to the Holdco’s. Those get added to the GRIP of the Holdco’s so when they eventually pay out to individuals, they can be paid as eligible dividends.