Following the sale of depreciable properties and eligible capital properties and before the end of its taxation year, a corporation pays a dividend or redeems shares in its capital. Would the income arising from such sales be considered to be earned or realized before the safe-income determination time? CRA responded (TI translation):
It is only at the end of the taxation year of the corporation that income determined in accordance with subsection 13(1) (resulting from the sale of depreciable property of the corporation) or subsection 14(1) (resulting from the sale of eligible capital) is included in the income of the corporation.
...Thus, based only on the wording of the legislation, the income computed under subsections 13(1) and 14(1) would not technically be part of the safe income in this situation.
However…we will accept that income determined under subsections 13(1) and 14(1) will be included in computing the income earned or realized before the safe-income determination time so long as the sale of assets that gave rise to such income had occurred before the safe-income determination time and to the extent that this income contributes to the hypothetical capital gain on the shares on which the dividend was received (under the assumption that there is a disposition at fair market value of the shares immediately before the dividend). Moreover, in such a case, we also will take the position that the taxes payable on these earnings must be deducted from that safe-income… .
[T]he equivalent position will apply in respect of a terminal loss… .