Could CRA reiterate its views on the consolidation of safe income in a corporate group?
After noting that its longstanding position had been that “a corporation can consolidate safe income of other corporations in which it has significant influence,” CRA reaffirmed that, in addition:
One can consolidate safe income of a corporation over which there is no significant influence if it can be clearly demonstrated that the safe income of such corporation contributes to the gain on the shares, bearing in mind that, in the case of portfolio investments in public corporations, what would be considered to contribute to the value of the shares held by the shareholder is not the income of the public corporations but rather the trading value of its shares on the stock exchange.
CRA went on to state:
The above discussion would also apply to consolidation of income from foreign corporations that are not foreign affiliates of the shareholder, as confirmed in Lamont.
… [T]he negative safe income of corporations would reduce the safe income of a holding corporation only to the extent that it can be considered to result in a reduction of the value of the shares of the holding corporation, for example, either because of a guarantee made by the holding corporation, or because of an actual payment for the losses by the holding corporation [citing Brelco].