7 October 2016 APFF Roundtable Q. 14, 2016-0655921C6 F - Safe income on hand - Preferred shares -- summary under Paragraph 55(2.1)(b)

Respecting the payment of a non-participating dividend to a holding company on preferred shares whose paid-up capital and ACB equals their redemption amount, CRA indicated that “the hypothetical capital gain that would have been realized on a FMV disposition of [the] preferred shares immediately before the dividend…would be nil,” so that the dividend would not be considered to come out of safe income on hand. Since the safe income harbour was not available, whether s. 55(2.1)(b) applied was a question of fact.