CRA ruled that annually recurring dividends are not a series of transactions for safe income determination purposes

The safe income determination time is no later than the time immediately before the earliest dividend paid as part of a “series,” which is broadly defined in s. 248(10) and Copthorne. It could be argued that if a corporation has a policy of annually distributing its earnings, the series respecting a dividend paid in, say, Year 10, commenced in Year 1, so that the earnings after Year 1 were not added to safe income. CRA noted that:

In a recent ruling, the CRA took the view that regular, recurring annual dividends would not, in the circumstances of the ruling request, be part of a series of transactions. Accordingly, a ruling confirmed that the safe income determination time in respect of the first and second annual dividends will be immediately before each such dividend.

CRA went on to confirm 2016-0633961E5 (respecting recapture of depreciation realized on sale before safe-income determination time being included in safe income.)

Turning to documentary issues, CRA noted that it would only very rarely accept accounting retained earnings as a “fair proxy” for safe income, and that it “will attempt, in regards to available resources” to accommodate requests to provide copies of older tax returns and assessments that it has on file to those trying to go back in time with a safe income computation.

Respecting a suggestion that Kruco did not permit the deduction of contingent amounts, CRA stated that “safe income should be reduced by actual or potential cash outflows such as non-deductible expenses, contingent liabilities and accounting reserves in the determination of the amount of safe income that can be viewed as contributing to the capital gain on a share.”

Neal Armstrong. Summary of 15 November 2016 TEI Roundtable, 2016-0672321C6 under s. 55(2.1)(c).