CRA reaffirms that there potentially can be a safe income pick-up from a corporation over which there is no significant influence

CRA reaffirmed its position dating back to the 1984 Hiltz paper that:

One can consolidate safe income of a corporation over which there is no significant influence if it can be clearly demonstrated that the safe income of such corporation contributes to the gain on the shares … .

CRA went on to note that this position:

  • extended to the consolidation of income from foreign corporations that were not foreign affiliates (citing Lamont)
  • generally would not extend to portfolio investments in public corporations (given that “what would be considered to contribute to the value of the shares held by the shareholder is not the income of the public corporations but rather the trading value of its shares on the stock exchange”)

CRA also stated:

… [T]he negative safe income of corporations would reduce the safe income of a holding corporation only to the extent that it can be considered to result in a reduction of the value of the shares of the holding corporation, for example, either because of a guarantee made by the holding corporation, or because of an actual payment for the losses by the holding corporation [citing Brelco].

Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.2 under s. 55(2.1)(c).