Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures (Budget Implementation Act, 2016, No. 1) (the “Budget”) received royal assent on June 22, 2016.

The Budget contained several significant amendments to the Income Tax Act (Canada) (the “ITA”), including amendments to the anti-surplus stripping rule contained in section 55 of the ITA. The amendments to section 55 of the ITA are of particular relevance to private corporations as they impact the taxation of some inter-corporate dividends.

All dividends which are caught by the amendments to section 55 of the ITA will be taxed as a capital gain in the hands of the holding corporation. Prior to these proposed amendments, these dividends may have flowed from subsidiary corporation to the holding corporation on a tax-free basis. The amendments to section 55 are broad in nature, and could therefore have a negative impacts on any creditor proofing or other planning strategies currently in place with respect to holding corporations.

The amendments to section 55 of the ITA in the Budget apply to dividends paid to a holding corporation after April 20, 2015. If your business has a holding corporation in its organizational structure you should contact your tax advisors to discuss the impact this amendment may have on your structure.