Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Flow-through of safe income
Position: Safe income does not flow through when crystallized in the ACB. It flows through when shares are transferred at ACB on a rollover basis, to the extent it can be considered to contribute to the gain on the shares.
2018 STEP CRA ROUNDTABLE – May 29, 2018
QUESTION 4: Safe Income and an Estate
At the 2017 STEP Roundtable, CRA made the point that safe income of a corporation owned by a person that died did not flow through to the estate of that person. The reason was not clearly stated but appears to be that the safe income became encompassed in the adjusted cost base of the shares to the estate. Can CRA clarify its reasoning? Also, if the shares of the corporation were deemed to be disposed of at adjusted cost base (ACB) because of the rollover under subsection 70(6), would the safe income then flow through to the testamentary spousal trust or spouse, or common-law partner, as the case may be?
This is a follow-up to a question of the 2017 STEP Roundtable (document 2017-0693421C6). The situation described in that question involved the death of an individual and an acquisition by the estate of the deceased of the shares held by the individual for an ACB equal to the FMV of those shares. We stated that there was no carry-over of the safe income that was previously attributable to those shares on the transfer of those shares by the estate to a holding corporation since there was no accrued gain on those shares. The main reason is that we would view the safe income as having crystallized in the ACB of the shares held by the estate. Where the shares are disposed of as a consequence of the death of the individual at ACB because subsection 70(6) applies, we are of the view that the safe income that can reasonably be considered to contribute to the accrued gain on those shares at that time would flow through to the acquirer of the shares.
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