CRA considers that the repeal of the s. 55(2) exemption, for dividends for which the Part IV tax is refunded on on-payment to an individual shareholder, busts integration

A dividend is received by Holdco from an Opco, which under the new s. 55(2) rules is no longer exempted from s. 55(2) even though the Part IV tax to which it was subjected is refunded on on-payment as a dividend to the individual shareholder.

CRA considers that the high rate of resulting combined tax cannot be alleviated by treating such s. 55(2) application as permitting an election to treat the applicable portion of the individual shareholder’s dividend as a capital dividend. Instead, such capital gain only generates capital dividend account for use for future dividends.

Neal Armstrong. Summary of 29 November 2016 CTF Annual Roundtable, Q.4 under s. 89(1) – capital dividend account – (a).