Principal Issues: Whether, in a particular situation where a personal trust would designate an amount in respect of its corporate beneficiary under subsection 104(13.1), such amount would be included in determining the corporate beneficiary's safe income or safe income on hand.
Position: No.
Reasons: Subsection 55(2) refers, among other things, to the notion of "income earned or realized by any corporation." The expression "income earned or realized by a corporation" is deemed to be the amount determined pursuant to paragraph 55(5)(b), (c), or (d), as the case may be. Consequently, safe income with respect to a share of a corporation refers to the corporation's net income, as determined for the purposes of the Act, as adjusted by paragraph 55(5)(b), (c), or (d), as the case may be, that is attributable to that particular share during the relevant holding period. In the given situation, the amount distributed by the trust to the corporate beneficiary would not be included in the corporation's income pursuant to subsection 104(13.1). This amount would be taxed at the trust's level. Consequently, the amount distributed could not increase the corporation's safe income or safe income on hand. Furthermore, the amount distributed by the trust could not be included in the corporation's safe income or safe income on hand on the basis of a "consolidation principle." CCRA's position has always been that the requirement to "consolidate" safe income within a corporate group is based on the express terms of subsection 55(2) which refers to "income earned or realized by any corporation." Paragraphs 55(5)(b), (c) and (d) also expressly refer to "income earned or realized by a corporation." Consequently, the terms of these provisions limit the consolidation of safe income to safe income generated in a corporation within a corporate group, and thus to amounts that have been included in such corporation's net income, as determined for the purposes of the Act and as adjusted by paragraph 55(5)(b), (c), or (d), as the case may be.