CRA comments on the application of safe income on hand to dividends paid on estate freeze prefs

Opco declares and pays a dividend (at the fixed 8% rate specified in the share terms) on estate freeze preferred shares held by Holdco with a nominal ACB and which had “inherited” safe income on hand from the common shares for which they had been exchanged of $700,000. CRA noted that the SIOH that contributed to the hypothetical capital gain on these prefs could be greater or less than $700,000 due to the effect of previous dividends or post-freeze earnings and stated that the dividend would reduce any post-SIOH attributable to the prefs before it ate into whatever was the balance remaining of the $700,000 of SIOH.

Neal Armstrong. Summary of 7 October 2016 APFF Roundtable, Q. 16 under s. 55(2.1)(c).