Example 1, Scenario 1 is summarized as follows:
Opco, which had refundable dividend tax on hand ("RDTOH") of $383,333 and no safe income paid a $1M dividend to which s. 55(2.1)(b) applied to Holdco (which also had a calendar year). At the time of preparing its original return, the Part IV tax liability and RTDOH of Holdco would be $383,333. An amended return for Holdco would then be prepared to give effect to its deemed capital gain under s. 55(2), but with the Part IV tax paid of Holdco remaining at $383,333. Holdco pays the refundable portion of the Part I tax ("RPPT") on the capital gain in the amount of $153,333, increasing its RDTOH to $536,666. On payment of a $1M dividend, Holdco would receive a DR (38 1/3%) of $383,333, reducing its RDTOH to $153,333 (RDTOH: $536,666 and DR: $383,333). The result in the amended return for Holdco would be that there would be federal tax payable in respect of the application of subsection 55(2) of $193,333 ($1,000,000 * 50% * 38 2/3% , of which $153,333 could be recovered in the event of a possible dividend payment by Holdco of at least $399,999).
CRA then provided two variants of Scenario 1 (in which a smaller or no dividend is paid by Holdco), and two versions of Example 2, under which the starting RDTOH of Opco is smaller.
Respecting the scenarios where smaller Holdco dividends were paid, CRA stated:
[A]ny future payment of a taxable dividend by Holdco that resulted in a refund of Part IV tax could result in the potential application of subsection 55(2) to the extent that this payment was part of the same series of transactions. The CRA would consider any future DR as a result of the payment of a dividend by a corporation, where the payment was part of the same series of transactions, as coming first from the Part IV tax paid on the taxable dividend.
Respecting when the amended return should be filed, CRA stated:
[T]he Act does not provide specific rules as to when the amended T2 return must be filed. However, it would be administratively preferable to wait for the initial notice of assessment to be issued before requesting an amendment to the original T2 return to take into account subsection 55(2).
However, regardless of the filing date of the amended T2, it is possible to avoid interest expenses by paying, by the balance due date that is applicable to the corporation, the tax based on the higher amount the corporation may owe in computing its income based on the application of subsection 55(2) on the amended T2 return. However, there are certain administrative rules that must be followed to ensure that the additional amount is allocated by the Minister to the correct taxation year and not refunded by the Minister on the initial notice of assessment [with such rules then being summarized].