Holdco owns all of the shares of Opco, which are worth $5 million. The Opco shares have safe income of $1 million. Opco has GRIP of $1 million and NERDTOH of $70,000. Opco can pay a $1 million eligible dividend and then a $182,608 non-eligible dividend to Holdco without 55(2) applying. The first dividend is “covered” by safe income and Holdco is not subject to Part IV tax on the dividend. Holdco is subject to Part IV on the full amount of the second dividend because of the refund that Opco will receive as a result of paying the dividend. 55(2), then, won’t apply to either dividend.
APFF 2021 Conference tax roundtable—Question 5, October 7, 2021, 2021-0900951C6
