Tax Actual Distributions and Accruals in Value of Shares
16.27. Another system would tax shareholders only, on actual distributions and increases in share values, those
increases reflecting, among other things, the profits
― 229 ―
not distributed. If decreases have occurred in the
value of shares, these would need to be taken into account in determining the amount subject to tax. The system would
reach undistributed profits only in so far as such profits are reflected in the value of shares. At the same time, it
would reach other gains by the company, realised and unrealised, reflected in the value of its shares as well as
increases in value due to changes in interest rates and other market factors.
16.28. The system would have many of the advantages of the allocation arrangement. But it is not feasible to tax capital gains from all varieties of assets on an accruals basis; hence this scheme would involve non-neutrality between shares and other assets. Also, while it might be practicable and was once proposed for Canada to tax capital gains on listed shares in this manner, the problems of an annual valuation of all shares would be intolerable. Finally, the implications for taxing non-residents would be akin to those of the allocation system.