Bco receives, from its wholly-owned subsidiary (Aco), two taxable dividends (the first, designated as an eligible dividend of $3.5 million, for $1.5 million), both of which are subject to s. 55(2). Bco designates under s. 55(5)(f) the $3.5 million dividend to consist of: a dividend of $3 million (the amount of the safe income on hand attributable to the gain on its shares); and $500,000. Can Bco include the full $3.5 million taxable dividend in computing its GRIP even though it is subject to s. 55(2)?
In finding that Bco could only include $3 million in its GRIP pursuant to para. (a) of Element G of the GRIP formula. CRA stated:
[W]here paragraph 55(2)(a) applies to a taxable dividend received by a corporation, the dividend cannot be included in computing the corporation's GRIP. However, … CRA … accepts that the portion of the dividend that may be considered safe income on hand attributable to the gain on the shares may be included in the GRIP of the corporation receiving the dividend if the corporation … designates such amount as a separate taxable dividend under paragraph 55(5)(f).