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). In this regard, CRA stated:
[A] position should be taken to avoid "double taxation" if we take as an example a situation where the amount referred to in paragraph 55(2)(a) should be included as a capital gain by virtue of paragraph 55(2)(c), where such amount should also be included as a capital gain on a potential disposition of the shares to a third party (since the amount referred to in paragraph 55(2)(a) would not be part of the ACB of the shares even if we applied paragraph 55(2)(c)). Our position in this example could be to apply paragraph 55(2)(c) but not to tax that amount as a capital gain on a potential disposition of the shares.