Mr and Mrs X hold all the shares of Corporation A and B, respectively (both private corporations). Mr X sells all his shares of Corporation A to Corporation B in consideration for a promissory note, resulting in his receipt of a deemed dividend under s. 84.1(1)(b) that is less than the GRIP of B. In finding that this dividend can be designated under s. 89(14) as an eligible dividend notwithstanding that Mr X does not hold any shares of B, CRA stated (in its summary, with very similar comments in the French body):
Subsection 89(14) and the definition of "eligible dividend" in subsection 89(1) do not refer to dividends paid (or received, as the case may be) "to a shareholder of any class of shares of its capital stock" as provided in subsection 83(2) nor to a dividend paid "on shares of its capital stock" as provided in subsection 129(1). The wording used in the "eligible dividend" provisions is different. Therefore, to be an "eligible dividend" as defined in subsection 89(1) and pursuant to the designation provided for in subsection 89(14), the individual does not have to be a shareholder of any class of shares of the capital stock of the corporation and the deemed dividend paid or received pursuant to paragraph 84.1(1)(b) does not have to be paid by the corporation on shares of its capital stock.