Principal Issues: Est-ce que l'ARC considère que le montant du dividende attribué par Fiducie à Holdco et inclus dans le revenu de cette dernière est comptabilisé dans le calcul du revenu protégé de Holdco?
Position: Oui
Reasons: Le montant du dividende qui doit être ajouté dans le calcul du revenu du bénéficiaire, pour une année d'imposition donnée, par l'effet de l'alinéa 104(13)a) L.I.R. peut faire l'objet d'une désignation à titre de dividende imposable par la fiducie en vertu du paragraphe 104(19) L.I.R.
ROUND TABLE ON FEDERAL TAXATION OF OCTOBER 10, 2014
APFF - Conference 2014
Question 7
Safe income and trust
A discretionary family trust resident in Canada (the "Trust") holds all of the participating and non-voting shares of a private operating corporation, Opco, while an individual resident in Canada, A, owns all of the shares with voting rights and without participation rights in Opco. The beneficiaries of the Trust are A, the spouse of A, their children as well as a private holding company, Holdco. All of Holdco's voting and participating shares are held by A.
Opco declares and pays a dividend to the Trust corresponding to the safe income on hand that is attached to the shares held by the Trust. The Trust distributes the dividend so received to Holdco in the course of its taxation year. As a result, the Trust deducts the amount of the dividend under subparagraph 104(6)(b)(i) in computing its income and its amount is included in Holdco's income by virtue of subsection 104(13). Subsection 104(19) applies in respect of the dividend and Holdco deducts the amount of the dividend from its income under subsection 112(1). No Part IV tax is applicable with respect to the dividend since Opco is connected to Holdco by virtue of the combined application of paragraph 186(4)(a), subsection 186(2), paragraph 251(1)(a) and subparagraph 251(2)(b)(i) and no dividend refunds are payable to the Trust as a result of the payment of the dividend to the Trust.
As indicated by the CRA at the APFF roundtable in 1999 (footnote 1) and in advance ruling 2009-0346361R3 (footnote 2), to the extent that the dividend declared and paid by Opco to the Trust corresponds to the safe income on hand that is attached to the shares held by the Trust, subsection 55(2) does not apply.
Question to the CRA
Does the CRA consider that the amount of the dividend distributed by the Trust to Holdco and included in its income should be accounted for in the safe income computation of Holdco?
CRA Response
Subsection 55(2) refers, inter alia, to the concept of "income earned or realized by any corporation after 1971 and before the safe-income time determination time". The "income earned or realized by any corporation" is deemed to be the amount determined in accordance with paragraph 55(5)(b), 55(5)(c) or 55(5)(d). Therefore, "safe income" in respect of a share of a corporation means the net income of the corporation determined in accordance with the Income Tax Act and adjusted pursuant to paragraph 55 (5)(b), 55(5)(c) or 55(5)(d), as the case may be, attributable to that particular share during its holding period.
On the other hand, paragraph 104(13)(a) provides for the inclusion in computing the income of a beneficiary of a trust (not referred to in paragraph (a) of the definition "trust" in subsection 108(1)) for a particular taxation year of the portion of the amount that would, but for subsections 104(6) and 104(12), be income of the corporation for its taxation year that ended in the particular taxation year, that became payable in the trust's year to the beneficiary.
Furthermore, the amount required under paragraph 104(13)(a) to be included in computing the beneficiary's income for a particular taxation year can be designated by the trust under subsection 104(19) to be a taxable dividend. The scenario provided states that such designation would be made by the Trust in favour of Holdco.
In this scenario, we are of the view that it would be reasonable to consider that the amount of the dividend allocated to Holdco by virtue of subsection 104(19) which was included in the computation of its income, would increase its safe income by an equivalent amount.
François Bordeleau
(613) 670-8930
October 10, 2014
2014-053806
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 "Roundtable on Federal Taxation," 1999 Conference, 2000, Montreal, Association for Taxl and Financial Planning, pp. 46: 25-60, question 4.4, at pages 46:45 to 45:51.
2 CANADA REVENUE AGENCY, advance ruling 2009-0346361R3, XXXXXXXXXX 2009.