CRA permits an eligible dividend to be allocated solely to the safe income portion of a larger dividend

A Canadian-controlled private corporation (Opco) with an ample general rate income pool is deemed to pay a significant deemed dividend to a CCPC shareholder (Holdco) when it redeems preferred shares.  All but $75,000 of that deemed dividend in turn is deemed to be proceeds of disposition by s. 55(2) because that is the safe income on hand attributable to the redeemed shares.  Opco designates only $75,000 of the deemed dividend as an eligible dividend, as that is the maximum possible addition to Holdco’s GRIP.

CRA considers that the full $75,000 is an addition to Holdco’s GRIP, i.e., it will not prorate the eligible dividend between the portion of the deemed dividend that is converted into proceeds of disposition in Holdco’s hands (and therefore is not eligible for a GRIP addition) and the safe income portion of the dividend (which is so eligible).

Neal Armstrong.  Summary of 20 February 2014 T.I. 2013-0480051E5 F under s. 89(1) - General Rate Income Pool.