S. 55(2) applied to the redemption by Opco of shares held by Holdco, given that the resulting s. 84(3) deemed dividend exceeded the safe income on hand attributable to the redeemed shares ("Safe Income"). Holdco made an s. 55(5)(f) designation. (a) When is the non-taxable portion of the s. 55(2) capital gain included in computing Holdco's capital dividend account ("CDA")? What if (b) no s. 55(5)(f) designation is made by Holdco, or (c) it is made late? CRA responded:
[(a)] [T]he non-taxable portion of the capital gain resulting from the redemption of the shares of the capital stock of Opco would be included in Holdco's CDC at the time of the disposition of such shares of the capital stock of Opco, i.e., at the time of their redemption.
… [(b)] [T[he total of the dividend referred to in subsection 84(3) would technically be deemed to be proceeds of disposition pursuant to paragraph 55(2)(b). That said, the inclusion in Holdco's CDA of the non-taxable portion of the capital gain resulting from the redemption of the shares of the capital stock of Opco would continue to occur on the disposition of those shares.
… [(c)] If Holdco made a late designation pursuant to paragraph 55(5)(f) and that designation was accepted …, such designation should be taken into account for the purposes of subsection 55(2). While such a designation would affect the amount to be included in Holdco's CDA as a result of the redemption of the Opco shares, it would not affect the timing of such inclusion. Thus, the inclusion in Holdco's CDA of the non-taxable portion of the capital gain resulting from the redemption of the Opco shares would continue to occur at the time of the disposition of the Opco shares.