CRA revises its Folio on capital dividends to address the CDA/55(2) interface
CRA has revised its Folio on capital dividends to reflect the position it reached in 2018-0780071C6. Para. 1.30 now states:
1.30 Where a deduction under subsection 112(1) is permitted on a dividend that results from an increase in paid-up capital, subparagraph 53(1)(b)(ii) prevents what may be described as the non-safe income portion of the dividend being added to the cost of the share on which the dividend was received. However, when such dividend is subject to the application of subsection 55(2), it is considered that a deduction under subsection 112(1) was not permitted in respect of that dividend and there is no denied increase in cost under subparagraph 53(1)(b)(ii).
CRA provides similar comments respecting the absence of a denied increase under s. 52(3)(a)(ii)(A)(II) where s. 55(2) has applied.
CRA has expanded its comments on the CDA adjustments respecting life insurance policies in light of the 2016 amendments.