5-911713 24(1)
Dear Sirs:
Re: Computation of Safe Income Subsection 55(2) and proposed subsection 248(24)
This is in reply to your letter of June 19, 1991 wherein you requested our views regarding the effect of proposed subsection 248(24) on the computation of "safe income" for purposes of subsection 55(2) of the Income Tax Act (the "Act").
According to subsection 192(18) of Bill C-18, tabled in the House of Commons on May 30, 1991, new subsection 248(24) will read as follows:
For greater certainty, it is hereby declared that, unless specifically required, neither the equity nor the consolidated method of accounting shall be used to determine any amount for the purposes of this Act.
You wondered whether, as a consequence of this provision, "safe income" for the purposes of subsection 55(2) will have to be computed on a non-consolidated basis.
For the purposes of this letter, the "safe income" attributable to a share means any income earned or realized by any corporation after 1971 to which a portion of the gain inherent in the share can reasonably be attributed.
Our Views
In our view, the enactment of subsection 248(24) as proposed will not affect the computation of the safe income attributable to a share for purposes for subsection 55(2).
The income earned or realized by a corporation will still have to be computed for purposes of subsection 55(2), as it has in the past This is done on a single-entity basis, using neither the equity nor the consolidated method of accounting, consistent with proposed subsection 248(24). This is not to say, however, that a portion of the gain inherent in a share of one corporation cannot be attributed to the income earned or realized by another. In our view, the proposed provision does not conflict with, and will not restrict, the requirement in subsection 55(2) to determine whether a portion of the gain inherent in a share can reasonably be attributed to the income earned or realized by any corporation. The use of the word "any" in the phrase "income earned or realized by any corporation ..." will, in our view, still permit the "consolidation" of safe income within a corporate group.
The foregoing expression of opinion is provided in accordance with the administrative practice described in paragraph 22 of Information Circular 70-6R2 dated September 28, 1990 and, as explained in that paragraph, is not binding on Revenue Canada, Taxation.
Yours truly,
for DirectorReorganizations and Non-resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch