2 August 1991 Income Tax Severed Letter

Audit Programs Directorate              Rulings directorate
Special Audits Division                 A.A. Cameron
                                        957-2115

Attention:  E.H. Gauthier
            Director
                                        912119

Enquiry concerning "Safe Income"

We are enclosing a letter from 19(1) which contains a number of questions related to "safe income" as determined for purposes of subsection 55(2) of the Income Tax Act (the "Act"). Since all except one of these questions concern administrative matters it would appear to be more appropriate for your Directorate to respond to his enquiry.

The one exception referred to above would be her question as to whether the addition of proposed subsection 248(24) to the Act will have any affect on the computation of "safe income". We have indicated in a technical interpretation recently issued to another taxpayer that, in our view, the enactment of this provision as proposed will not affect the manner in which "safe income" attributable to a share is calculated. "Safe income" has always been calculated on a single-entity basis, using neither the equity nor consolidated method of accounting, which is consistent with the above proposed subsection. However, the reference in subsection 55(2) of the Act to "...income earned or realized by any corporation..." permits the "consolidation" of "safe income" within a corporate group and, in our view, will continue to do so notwithstanding this proposed amendment to the Act.

We note that the author of the enclosed letter has requested a response by August 31,1991 due to a deadline for an article being prepared for the Canadian Tax Journal. Please contact the writer if you have any questions concerning this matter. We would also appreciate receiving a copy of your reply to the taxpayer.

Director Reorganizations and Non-Resident Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

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