29 November 2016 CTF Roundtable Q. 4, 2016-0671491C6 - 55(2) and Part IV Tax -- summary under Subsection 55(2)

A dividend is received by Holdco from an Opco, which under the new s. 55(2) rules is no longer exempted from s. 55(2) even though the Part IV tax to which it was subjected is refunded on on-payment as a dividend to the individual shareholder. The high rate of resulting combined tax cannot be alleviated by treating such s. 55(2) application as permitting an election to treat the applicable portion of the individual shareholder’s dividend as a capital dividend. Instead, such capital gain only generates capital dividend account for use for future dividends.