Principal Issues:
1. Whether a redemption agreement entered into after April 26, 1995 without other supporting evidence is sufficient to satisfy the "main purpose" test referred to in paragraph 131(11)(b) of the Income Tax Amendments Act, referred to as the grandfathering rules to the stop loss provisions in subsection 112(3) of the Income Tax Act.
2. Where the conditions of paragraph 131(11)(b) are met, whether new shares issued pursuant to section 85 of the Income Tax Act are grandfathered.
Position:
1. No
2.Yes
Reasons:
1. Where the only document provided by the taxpayer to support the main purpose of the insurance policy in existence on April 26, 1995 is a redemption agreement entered into after April 26, 1995, the taxpayer has not established that it was reasonable to conclude that the main purpose of the insurance policy in existence on April 26, 1995 was to fund, in whole or in part the redemption of shares held by the taxpayer on April 26, 1995.
2. In accordance with the deeming rule in subsection 131(12), where new shares are issued pursuant to a section 85 the new shares will be deemed to be the same as the grandfathered shares.