2018-0743951C6 STEP 2018 – Q4 – Safe income and estate

Principal Issues: Flow-through of safe income

Position: Safe income does not flow through when crystallized in the ACB. It flows through when shares are transferred at ACB on a rollover basis, to the extent it can be considered to contribute to the gain on the shares.

Reasons: 55(2.1)(c)

Author: Ton-That, Marc
Section: 55(2)

2018 STEP CRA ROUNDTABLE – May 29, 2018

QUESTION 4: Safe Income and an Estate

At the 2017 STEP Roundtable, CRA made the point that safe income of a corporation owned by a person that died did not flow through to the estate of that person.  The reason was not clearly stated but appears to be that the safe income became encompassed in the adjusted cost base of the shares to the estate.  Can CRA clarify its reasoning?  Also, if the shares of the corporation were deemed to be disposed of at adjusted cost base (ACB) because of the rollover under subsection 70(6), would the safe income then flow through to the testamentary spousal trust or spouse, or common-law partner, as the case may be?

CRA Response

This is a follow-up to a question of the 2017 STEP Roundtable (document 2017-0693421C6).  The situation described in that question involved the death of an individual and an acquisition by the estate of the deceased of the shares held by the individual for an ACB equal to the FMV of those shares.  We stated that there was no carry-over of the safe income that was previously attributable to those shares on the transfer of those shares by the estate to a holding corporation since there was no accrued gain on those shares.  The main reason is that we would view the safe income as having crystallized in the ACB of the shares held by the estate.  Where the shares are disposed of as a consequence of the death of the individual at ACB because subsection 70(6) applies, we are of the view that the safe income that can reasonably be considered to contribute to the accrued gain on those shares at that time would flow through to the acquirer of the shares.

Marc Ton-That
2018-074395

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2018

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2018