Some Recent Developments in Safe Income Determination
Date:
July 22 2004
Subsection 55(2) of the Income Tax Act (the “Act”) deems, in certain circumstances, that taxable dividends received by a Canadian resident corporation, that are deductible in computing its income under subsection 112(1) or (2) or 138(6), are to be treated as a capital gain, or proceeds of disposition of capital property, and not as tax-free intercorporate distributions. The purpose of this subsection is to prevent taxpayers from engaging in a series of transactions whereby proceeds of disposition are, in effect, converted to tax-free intercorporate dividends.
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