CRA will construe paragraph 55(2)(c) so that the amount deemed not to be a dividend is not taxed as a capital gain twice. Paragraph 55(2)(c) will be applied in the year of the increase of the stated capital of the shares; when the shares are sold, the capital gain will be reduced by the amount already included in income pursuant to paragraph 55(2)(c).
Respecting the payment of a preferred share stock dividend that is followed by a sale of the preferred shares, CRA quoted with approval its earlier statement in 9830665 that:
If the disposition of the preferred shares occurs in a taxation year subsequent to the year of the payment of the stock dividend and the sale of the common shares, the taxpayer must apply paragraph 55(2)(b) in respect of the stock dividend and not include a taxable capital gain on the sale of the preferred shares in the subsequent taxation year.