Budget 2025: New Anti-Deferral Rules on Inter-Corporate Dividends

The federal government introduced new anti-deferral rules in Budget 2025 to address certain timing advantages involving inter-corporate dividends within private corporate groups.

These rules have now been enacted through Bill C-15.

In simple terms, the new rules are meant to prevent one corporation from receiving a dividend refund early while the related tax within the group is pushed off to a later date because of different corporate year-ends.

The Issue the Government Was Trying to Fix

Under the existing refundable tax system, a private corporation may recover part of its refundable tax when it pays a taxable dividend.

In some situations, where related corporations had different year-ends, this created a timing benefit. One corporation could claim the refund first, while the related corporation would not have to deal with the related tax until later.

The government introduced new rules to stop that timing advantage.

What the New Rule Does

Under the new rules, a dividend refund may be suspended if:

• a corporation pays a taxable dividend to an affiliated private corporation or subject corporation, and

• the recipient corporation’s balance-due day for the taxation year in which the dividend is received falls after the payer corporation’s balance-due day for the taxation year in which the dividend is paid.

If that happens, the payer may not be able to claim the dividend refund right away.

Instead, the refund is generally delayed until the amount is distributed in a way that removes the tax deferral advantage.

This means the refund is generally deferred, not necessarily lost permanently.

Important Point

These rules are not intended to create double taxation.

Where the payer’s matching dividend refund is denied under the new rule, the affiliated recipient is generally not subject to matching Part IV tax on that same dividend for that year.

Exceptions

There are a few important exceptions, including:

Pay-through reliefIf each affiliated dividend recipient in the chain pays a subsequent dividend by the required time, the refund may still be available.

Loss-restriction / acquisition-of-control reliefCertain dividends may not be caught where the payer corporation is subject to a loss restriction event within 30 days after paying the dividend.

Butterfly reorganization reliefCertain dividends arising under paragraphs 55(3)(a) or 55(3)(b) are excluded.

Example

The example below shows how the timing issue can arise.

	Investco	Holdco
Year-end	December 31, 2026	November 30, 2027
Balance-due day	February 28, 2027	January 31, 2028
Dividend paid by Investco	December 31, 2026	—

In this example, Investco pays a taxable dividend to Holdco on December 31, 2026.

Because Holdco’s balance-due day for the taxation year in which it received the dividend falls after Investco’s balance-due day for the taxation year in which it paid the dividend, Investco’s dividend refund may be suspended under the new rule.

Under the old planning result, Investco may have been able to receive its refund first while the related tax in Holdco came due later.

Under the new rule, that timing benefit is removed.

Why This Matters

These changes may affect private corporate groups that:

• have affiliated corporations with different year-ends

• use inter-corporate dividends as part of tax planning

• rely on dividend refunds for cash flow

• are involved in reorganizations or pre-sale planning

For many private groups, the biggest impact will be on cash flow, dividend timing, and planning flexibility.

Effective Date

This measure applies to dividends paid in taxation years beginning on or after November 4, 2025.

That detail is important. A dividend paid after November 4, 2025 is not automatically subject to the new rules if it was paid in a taxation year that began before November 4, 2025.

Final Thoughts

These new rules do not eliminate dividend refunds, but they do limit the ability to use related corporations with different year-ends to create a tax timing advantage.

If your corporate group includes multiple related corporations, it may be worth reviewing whether these changes could affect your dividend planning going forward.

The information contained in this post is for informational purposes only and should not be relied on as accounting, tax, or legal advice. Professional advice should always be obtained based on your specific circumstances.