Opco pays a stock dividend to Holdco of shares with a paid-up capital of nil and a fair market value of $1,000 (and whose amount is deemed to be the greater of those two amounts). As the safe income that can reasonably be viewed as contributing to gain on Opco shares was $900, does the bifurcation of the dividend into two dividends under s. 55(2.3) mean that the $900 is exempt as not exceeding safe income, and the $100 is exempt if its purpose is not to significantly reduce the gain or the value of the shares?
CRA indicated that the $1000 dividend is first subject to tests under s. 55(2.1)(a) and (b) and, if those provisions apply, the stock dividend is segregated into two dividends under s. 55(2.3), and the amount of the stock dividend in excess of safe income ($100) becomes the amount referred to in s. 55(2.1)(c) - and it is that amount that is subject to the application of s. 55(2).