Line 320 - Taxable dividends deductible under section 112 or 113, or subsection 138(6)

Line 320 - Taxable dividends deductible under section 112 or 113, or subsection 138(6)

Complete Schedule 3, Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation, if you either received or paid dividends. For details on how to complete Schedule 3, see Parts 3 and 4 of Schedule 3 on page 82 and "Line 712 - Part IV tax payable" on page 95.

Section 112 and subsection 138(6) of the Act allow corporations that receive intercorporate dividends to claim a deduction equal to the amount of dividends received.

The dividend received deduction under subsections 112(1), 112(2), and 138(6) will be denied for any dividends received or deemed received (if the shares were held by the financial institution) after 2023 by a corporation that is a financial institution (as defined in 142.2(1)). This applies to shares that are mark-to-market (MTM) property or tracking property of the corporation (or that would be MTM property of the corporation for the year if the share was held at any time in the year by the corporation).

As an exception, this measure does not generally apply to dividends received on taxable preferred shares (as defined in the Income Tax Act).

Shares are considered MTM property when a financial institution holds less than 10% of the vote or value of the corporation that issued the shares. A tracking property is a property the fair market value of which is determined by reference to certain attributes of another property that would be MTM property if held directly by the corporation.

When calculating taxable income, you can deduct, under section 112, any of the following types of taxable dividends received:

• dividends from a taxable Canadian corporation, or from a corporation resident in Canada and controlled by the receiving corporation

• dividends (or a portion of them) from a non-resident corporation (other than a foreign affiliate) that has carried on business in Canada continuously since June 18, 1971

The following types of taxable dividends received are not deductible under section 112:

• dividends from a corporation that is exempt from Part I tax

• dividends on collateralized preferred shares (loss rental plans)

• dividends that are part of a dividend rental arrangement, as defined in subsection 248(1)

• dividends on term preferred shares received by certain financial institutions

• dividends on shares guaranteed by a specified financial institution, as described in subsection 112(2.2)

References
Subsections 112(1), 112(2), and 112(2.1) to 112(2.9)

Section 113 contains the authority and the limitations concerning the deduction of dividends received from foreign affiliates.

Subsection 138(6) contains the authority for a life insurer to deduct the taxable dividends received from taxable Canadian corporations, other than dividends on term preferred shares that are acquired in the ordinary course of its business.

On line 320, enter the amount of taxable dividends (as per Schedule 3) deductible in calculating taxable income under section 112, or 113, or subsection 138(6). This amount is the total of column 240 of Schedule 3.

By deducting taxable dividends received from net income or loss amount shown on line 300, you can create or increase a non-capital loss for the year.

Reference
IT-269, Part IV Tax on Taxable Dividends Received by a Private Corporation or a
Subject Corporation

5