CRA confirms that it makes no difference if safe income is too low because of incentive tax deductions

In the course of a discussion of s. 55(2.1)(b) that is largely repetitive of previous published positions, CRA reduced to writing a comment it made orally at the June 2016 National Technical Seminar that even “if corporate income has not previously been taxed…because the corporation was entitled to certain [incentive] tax benefits under the Act…then a dividend paid by the corporation from such income should be subject to subsection 55(2) unless none of the purposes of the dividend is described in proposed paragraph 55(2.1)(b)” – and added (implying that someone had argued the contrary) that this is also the case even where the funds received by the shareholder instead are in the form of redemption proceeds funded with borrowed money.

Neal Armstrong. Summary of June 2016 External T.I. 2016-0627571E5 under s. 55(2.1)(b).