Principales Questions: Would a designation made under subsection 89(14) of the Act be invalid in a situation where a corporation redeemed the shares of its capital stock, the designation has been made with respect to the deemed dividend arising from the application of subsection 84(3) and where there has been an error in the amount of the paid-up capital resulting in an understatement of the amount of the deemed dividend initially calculated by the parties?
Position Adoptée: Provided that the GRIP amount is sufficient to cover the correct amount of the deemed dividend and that the designation was made by referring to the number and class of shares being redeemed, the error would not render the designation invalid in such a case. The CRA would not require that a fixed amount be indicated in the designation. Even if there is no reference in the designation to the number and class of shares being redeemed, the designation could be considered valid in cases where it is not possible to consider that the designation could be in respect of another dividend.
Raisons: Where shares are redeemed, the dividend deemed to have been paid is the result of the formula provided for in subsection 84(3). In such a case, the number and class of shares redeemed are the items necessary to identify the dividend for the purposes of subsection 89(14). This position in the context of the application of subsection 84(3) must be distinguished from CRA's position with respect to the designation requirement stated in subsection 89(14) in the context of regular dividends declared by a corporation. In case of regular dividends, CRA's position is that, in order to be valid, an eligible dividend designation must provide the amount of the dividend.