In a recent technical interpretation, the Canada Revenue Agency (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.
The situation described in the technical interpretation involved the death of an individual and an acquisition by the estate of the deceased of the shares held by the individual for an adjusted cost base equal to the fair market value of those shares. From the Agency’s perspective, the safe income was crystallized in the adjusted cost base (ACB) of the shares held by the estate. Alternatively, where shares are disposed of as a consequence of the death of the individual at ACB because of a transfer to a spouse (or spouse trust), it is the CRA 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.
The devil is in the details which may impact future tax planning in a purchase and sale context.