CRA indicates that, notwithstanding dividend bifurcation under s. 55(5)(f) (or 55(2.3), the s. 55(2.1)(b) purpose test is to be applied to the whole dividend
CRA did not like the suggestion that safe income of Opco effectively can be duplicated on the basis that where a dividend in excess of safe income is paid by Opco to Holdco, the bifurcation by s. 55(5)(f) of the dividend into two parts means that the first component is protected as coming out of safe income, and the second component also is not subject to s. 55(2) if, as per s. 55(2.1)(b), its purpose is not to significantly reduce the gain on or the value of the shares.
However, to get to the “right” result, CRA applied a gymnastic interpretation of ss. 55(2.1) and (2) under which in four places “dividend” refers to the whole dividend, and in two places refers only to the portion thereof in excess of safe income. For some reason, this brings to mind the statement in Gulf Canada that: "There is a strong, indeed overwhelming, presumption that Parliament, having used the same word three times in the same subsection, intended it to bear the same meaning each time."
Hopefully Finance will accept the CRA interpretation as being judicially persuasive, so that these rules do not suffer further encrustation.
Neal Armstrong. Summary of 21 November 2017 CTF Annual Conference Roundtable, Q.5 under s. 55(2.1)(b) and s. 55(2.3).