Principales Questions: Corporation A is a CCPC and carries on a residential and commercial construction business. Corporation A issues progress billings as work on a project proceeds for the purposes of reporting contract revenues as described in IT-92R2. Corporation A's only issued and outstanding shares consist of 100 common shares. Corporation A has only one construction project outstanding, for which construction costs and profits are estimated to be respectively $20,000,000 and $2,000,000. In Corporation A's first taxation year, say year 1, work in progress (hereinafter "WIP") and construction expenses amount to respectively $11,000,000 and $10,000,000. In the computation of its year 1 net income for income tax purposes, Corporation A deducted the WIP and, consequently, incurred a non-capital loss of $10,000,000. At the beginning of year 2, transactions are implemented and the application of subsection 55(2) is triggered. How, in the particular situation, will the safe income on hand (hereinafter "SIOH") be computed for the stub period starting on the first day of year 2 and ending on the safe income determination time?
Position Adoptée: General comments provided. The key factors are that the computation of SIOH for the stub period must be reasonable in the circumstances and that generally the SIOH for the stub period is determined by allocating a proportion of the income of the corporation for the taxation year to the stub period.
Raisons: Question of fact and previous positions.