A tax that an entity has to pay when it decides to untaint its “tainted” share capital account. A share capital account is tainted when an entity is prevented from transferring profits into that account and from distributing profits to shareholders by means of a non-assessable capital distribution.

This prevention is governed by the so-called tainting rules that apply where an entity transfers profits into a share capital account, and subsequently it pays such profits to shareholders. These rules prevent entities from taking advantage of the exception stating that amounts returned to shareholders from the share capital account are not dividends– and cannot be treated as dividends- for income tax purposes.

Once tainting occurs, a share capital account is no more considered to be a share capital account. A tainting tax recoups any tax that may have not been paid by the shareholders receiving non-assessable distributions from a tainted share capital account.