7 October 2011 APFF Roundtable Q. 29, 2011-0412131C6 F - Subsection 55(2) and Capital Dividend Account -- summary under Clause (a)(i)A)

If in the year prior to the sale of Opco by Holdco, Opco pays a dividend to Holdco which is subject to s. 55(2), s. 55(2)(b) generally would apply to trigger a capital gain and, thus, an addition to the capital dividend account, at the time of the disposition of the Opco shares. However, if s. 55(2)(c) instead applied, there would be deemed to be a capital gain of the corporation for the year in which the dividend was received, so that the resulting addition to the capital dividend account could only be distributed in the following years.