The taxpayer (a Canadian-controlled private corporation) received $1.2 million upon the purchase for cancellation of shares, having a paid-up capital of $732, of a connected corporation (HSP), thereby realizing a deemed dividend (before any application of s. 55(2)) of $1,199,268 (which it subdivided into 10 separate deemed dividends under s. 55(5)(f), the first eight of which totalled to the estimated applicable safe income on hand of $252,265, and the ninth of which was the $566,920 amount of the dividend subject to Part IV tax). In calculating the portion of the deemed dividend that, in turn, was deemed to be proceeds under s. 55(2), the Minister subtracted the Part IV tax dividend amount of $566,920 from $1,200,000 to arrive at $633,080, so that the taxpayer's capital gain was $303,378 based on its adjusted cost base of $329,702. The Minister (contrary to the taxpayer's approach) did not make a further deduction for the safe income amount as this was included in the dividend subject to Part IV tax.
In rejecting a submission (at para. 19) of the taxpayer "that a taxpayer has the right to designate which portion of a dividend that will or will not be subject to Part IV tax," and in confirming the Minister's calculation, Rip J stated (at para. 29) that "paragraph 55(5)(f) is silent with respect to any allocation of the Part IV tax among the designated dividends" and (at para. 31):
It is readily apparent that Part IV tax is exigible on receipt of the first dollar of dividend, on the facts at bar, on amounts first totalling $566,920. Safe income is not safe from Part IV tax.