Does the designation by the corporate recipient of part of a dividend as a separate taxable dividend in respect of the portion of the dividend exceeding the safe income result in a capital gain corresponding to such separate taxable dividend in light of the amendment under the July 31, 2015 legislative proposals to the definition of "proceeds of disposition" in s. 54? CRA responded (TI translation):
If…the separate taxable dividend to which subsection 55(2) applies arises from the application of subsection 84(3) to the redemption of a share by the corporation…, the separate taxable dividend will be deemed to not be a dividend received by the recipient of the dividend and will be deemed, under paragraph 55(2)(b), to be included in the proceeds of the disposition of the redeemed share, except to the extent that the dividend is otherwise included in calculating those proceeds. The new definition of "proceeds of disposition"…provides that the dividend deemed to be received under subsection 84(3) will be reduced by the "proceeds of disposition" of the share except to the extent that the dividend is deemed by paragraph 55(2)(b) to be the proceeds of disposition of a share. This inclusion in the proceeds could result, in some circumstances, in an additional capital gain.
If subsection 55(2) applies, but paragraph 55(2)(b) does not apply, in a given situation, the dividend will be deemed, under paragraph 55(2)(c) to be a capital gain of the recipient of the dividend, for the year in which the dividend was received, from the disposition of a capital property. In such a case, it is not necessary to refer to the "proceeds of disposition" as defined in section 54 in respect of the separate taxable dividend.