Principales Questions: 1. Where subsection 55(2) applies with respect to the increase of the stated capital of shares, would CRA take a position to eliminate the double taxation that could arise in such a case?
2. Where subsection 55(2) applies with respect to the stock dividend, would CRA take a position to eliminate the double taxation that could arise in such a case?
Position Adoptée: 1. In a situation where the conditions to apply paragraph 55(2)b) are met, subsection 55(2)(c) would not apply. In computing the amount added to the proceeds of disposition pursuant to subsection 55(2)(b), amounts included otherwise as the proceeds of disposition would be excluded from the proceeds included pursuant to subsection 55(2)(b). Therefore, no double taxation would arise in that case. However, in circumstances where subsection 55(2)(c) applies instead of paragraph 55(2)(b), the amount deemed not to be a dividend could be taxed as a capital gain twice. In such a case, we would apply 55(2)(c) in the year of the increase of the stated capital of the shares and when the shares would be sold, the capital gain would be reduced by the amount already included in the income pursuant to paragraph 55(2)(c).
2. CRA would take a position similar to the one taken in document 9830665.
Raisons: 1. Where paragraph 55(2)(b) applies, no administrative position is required. Where paragraph 55(2)(c) applies, a position is necessary to eliminate the inclusion as a capital gain of the same amount resulting from the fact that even if the amount is taxed as a capital gain pursuant to paragraph 55(2)(c), the ACB of the shares is not increased by that amount.
2. Previous position.