2023 Ruling 2020-0862441R3 - Charitable donation by Estate

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. Does subsection 84(2) apply to deem a taxable dividend to be paid on the payment of the shareholder loan account to the Estate? 2. Will the cash donation by the Estate to the Qualified Donee be considered to be a gift of property that was acquired by the Estate on and as a consequence of the death of the Deceased, or property that was substituted for that property?

XXXXXXXXXX									2020-086244

XXXXXXXXXX

Dear XXXXXXXXXX:

Re: CONTAINS TAXPAYER INFORMATION
Advance Income Tax Ruling – Subsection 84(2) and Charitable donation

XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling (“Ruling”) on behalf of the above-named taxpayers. We also acknowledge the information provided in subsequent correspondence and during our various telephone conversations in connection with your request. The information that you provided in such correspondence and in the telephone discussions form part of this letter only to the extent described herein.

We understand that to the best of your knowledge and that of the taxpayers involved, none of the proposed transactions or issues involved in this Ruling are the same as or substantially similar to transactions or issues that are:

(a) in a previously filed return of the taxpayers or a related person;

(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or a related person;

(c) under objection by the taxpayers or a related person;

(d) the subject of a current or completed court process involving the taxpayers or a related person; or

(e) the subject of a ruling previously considered by the Income Tax Rulings Directorate in relation to the taxpayers or a related person.

This document is based solely on the Facts and Proposed Transactions.

DEFINITIONS

Unless otherwise stated:

(a) all references herein to a part, section, subsection, paragraph or subparagraph are to the relevant provision of the XXXXXXXXXX, as amended, (the “Regulations”);

(b) all terms used in this letter that are defined in the Act (or in the Regulations) have the meaning given in such definition;

(c) all references to monetary amounts are in Canadian dollars; and

(d) the singular should be read as plural and vice versa where the circumstances so require.

The following abbreviations, terms and expressions have the meanings specified, and the relevant parties to the Proposed Transactions will be referred to as follows:

“adjusted cost base” or "ACB" has the meaning assigned in section 54;

“Aco” means XXXXXXXXXX, a body corporate formed on the amalgamation, on XXXXXXXXXX, under the laws of XXXXXXXXXX, of Bco and Cco as described in Paragraph 34;

“arm’s length” has the meaning assigned by subsection 251(1);

“Bco” means XXXXXXXXXX, a body corporate incorporated under the laws of XXXXXXXXXX which was amalgamated with Cco to form Aco on XXXXXXXXXX as described in Paragraph 34;

“capital gain” has the meaning assigned in paragraph 39(1)(a);

“capital property” has the meaning assigned in section 54;

“Cco” means XXXXXXXXXX, a body corporate incorporated under the laws of XXXXXXXXXX which was amalgamated with Bco to form Aco on XXXXXXXXXX as described in Paragraph 34;

“Completed Transactions” means the transactions described under the heading “Completed Transactions” below;

“cost amount” has the meaning assigned by subsection 248(1);

“CRA” means the Canada Revenue Agency;

“Dco” means XXXXXXXXXX, a body corporate which was formed on the amalgamation, under the laws of XXXXXXXXXX, of Eco and Fco on XXXXXXXXXX as described in Paragraph 29;

“Deceased” means XXXXXXXXXX;

“disposition” has the meaning assigned in subsection 248(1);

“Eco” means XXXXXXXXXX, a body corporate formed on the amalgamation, under the laws of XXXXXXXXXX, of Gco and Hco as described in Paragraph 28;

“ERDTOH” means “eligible refundable dividend tax on hand” and has the meaning assigned in subsection 129(4);

“Estate” means the Estate of the Deceased governed by the terms of the Will, which is a Testamentary Trust which has been designated as a GRE when the Executor filed the first tax return for the Estate;

“Executor” means an executor of the Estate as appointed by the Deceased in his Will, specifically being either, XXXXXXXXXX, sister of the Deceased, and XXXXXXXXXX, an individual unrelated to the Deceased;

“Facts” means the transactions described under the heading “Facts” below;

“fair market value” or “FMV” means the highest price available in an open and unrestricted market between informed and prudent parties acting at arm’s length and under no compulsion to act, expressed in terms of cash;

“Fco” means XXXXXXXXXX, a body corporate incorporated under the laws of XXXXXXXXXX which amalgamated with Eco on XXXXXXXXXX to form Dco, as described in Paragraph 29;

“Father” means XXXXXXXXXX, father of the Deceased, also deceased;

“Final Donation Amount” means the amount of cash that will be donated to the Qualified Donee by the Estate as determined under Paragraph 51;

“Gco” means XXXXXXXXXX, a body corporate incorporated under the laws of XXXXXXXXXX which amalgamated with Hco on XXXXXXXXXX to form Eco, as described in Paragraph 28;

“Gco Note” means the debt owing by Gco to Mother’s Estate, in the amount of $XXXXXXXXXX;

“Graduated Rate Estate” or “GRE” has the meaning assigned by subsection 248(1);

“Hard ACB” of shares means the amount of the adjusted cost base less adjustments contemplated under paragraph 84.1(2)(a), under subparagraph 84.1(2)(a.1)(i), and subparagraph 84.1(2)(a.1)(ii);

“Hco” means XXXXXXXXXX, a body corporate incorporated under the laws of XXXXXXXXXX, which amalgamated with Gco on XXXXXXXXXX to form Eco, as described in Paragraph 28;

“Investments” means a diversified portfolio of investment property that included cash and cash equivalents, government and corporate bonds, shares of public corporations and units in mutual funds;

“Mother” means XXXXXXXXXX, mother of the Deceased, who is also deceased;

“Mother’s Estate” means the Estate of Mother governed by the terms of the last will and testament of Mother;

“NERDTOH” means “non-eligible refundable dividend tax on hand” and has the meaning assigned in subsection 129(4);

“paid-up capital” or “PUC” has the meaning assigned by subsection 89(1);

“Paragraph” refers to a numbered paragraph in this letter;

“proceeds of disposition” has the meaning assigned in section 54;

“Proposed Transactions” means the transactions described under the heading “Proposed Transactions” below;

“Qualified Donee” means the XXXXXXXXXX, a private foundation within the meaning of subsection 149.1(1), with charitable registration number XXXXXXXXXX;

“resident of Canada” means resident of Canada for the purposes of the Act;

“Shareholder Loan Account” means the amount owing by Aco to the Estate, after completion of the Proposed Transactions described in Paragraphs 44-49;

“Spousal Trust” means the trust for Mother created and governed by the terms of the last will and testament of Father;

“Testamentary Trust” has the meaning assigned by subsection 108(1); and

“Will” means the last will and testament of the Deceased.

FACTS

A complete description of all of the relevant facts is as follows:

1. The Deceased died on XXXXXXXXXX. The Deceased was a resident of Canada at all relevant times, including at the time of his death.

2. The Estate was a resident of Canada at all relevant times and continues to be a resident of Canada. The beneficiaries of the Estate were resident of Canada at all relevant times. The Estate’s first taxation year-end ended on XXXXXXXXXX.

3. The Deceased was predeceased by Mother on XXXXXXXXXX. Immediately before Mother’s death, Mother was a resident of Canada.

4. Mother’s Estate was a resident of Canada at all relevant times.

5. The Deceased was predeceased by Father on XXXXXXXXXX. Immediately before Father’s death, Father was a resident of Canada.

6. The Spousal Trust was a resident of Canada at all relevant times.

7. During her lifetime, Mother was the sole beneficiary of Spousal Trust, a trust that satisfied the requirements of paragraph 70(6)(b). The Deceased was one of three, equal, remainder beneficiaries of the Spousal Trust.

8. Mother’s Estate was left in equal shares to three beneficiaries, one of which was the Deceased. The Deceased’s interest in Mother’s Estate, however, was subject to a condition subsequent such that on the Deceased’s death he ceased to have an interest in Mother’s Estate. There was a misunderstanding in the administration of Mother’s Estate, however, such that assets were transferred to the Estate from Mother’s Estate. Those assets are now subject to negotiation for their repayment.

9. At the time of Mother’s death, the Spousal Trust owned, inter alia, the following shares of Fco as capital property:

	Class		Number	PUC		ACB		FMV
	common	XXXXX		XXXXX		XXXXX		XXXXX

10. Pursuant to subparagraph 104(4)(a)(i.1), the Spousal Trust was deemed to have disposed of these shares at the end of the day of Mother’s death and to have reacquired them immediately after that day at a cost amount equal to the FMV of the shares immediately prior to Mother’s death.

11. At the time of Mother’s death, Mother owned, inter alia, the following shares of Gco as capital property:

	Class				Number	PUC		ACB		FMV
	Class A preference	XXXXX		XXXXX		XXXXX		XXXXX
	Class B preference	XXXXX		XXXXX		XXXXX		XXXXX

12. Pursuant to subsection 70(5), Mother was deemed to have disposed of her Gco shares immediately before her death and Mother’s Estate, and each heir of Mother’s Estate, was deemed to have acquired those Gco shares at a cost amount equal to their FMV immediately prior to Mother’s death.

13. At the time of the Deceased’s death, the Deceased held cash. In addition, the Deceased was the beneficial and legal owner of the following shares of Cco, and such shares were capital property to the Deceased:

	Class				Number	PUC		ABC		FMV
	Common			XXXXX		XXXXX		XXXXX		XXXXX
	First preferred		XXXXX		XXXXX		XXXXX		XXXXX
	Second preferred		XXXXX		XXXXX		XXXXX		XXXXX

The Deceased was owed $XXXXXXXXXX from Cco at the time of his death.

14. (a) At the time of the Deceased’s death, the Deceased was the beneficial and legal owner of one share of Fco, and such share was capital property to the Deceased:

	Class		Number	PUC		ACB		FMV
	common	XXXXX		XXXXX		XXXXX		XXXXX

(b) In addition, the Estate was a beneficiary of the Spousal Trust. As provided in paragraph 23, XXXXXXXXXX the shares of Fco held by the Spousal Trust were distributed to the Estate. The following are the details of XXXXXXXXXX of the Fco shares held by the Spousal Trust at the time of the Deceased’s death:

	Class		Number	PUC		ACB		FMV
			common	XXXXX		XXXXX		XXXXX		XXXXX

15. (a) At the time of the Deceased’s death, the Deceased was the beneficial and legal owner of the following shares of Gco, and such shares were capital property to the Deceased:

	Class		Number	PUC		ACB		FMV
	common	XXXXX		XXXXX		XXXXX		XXXXX

(b) In addition, the Estate received the following shares of Gco on the incorrect assumption that the Estate had an interest in Mother’s Estate.

	Class				Number	PUC		ACB		FMV
	Class A preference	XXXXX		XXXXX		XXXXX		XXXXX
	Class B preference	XXXXX		XXXXX		XXXXX		XXXXX

The Estate also received a receivable, the Gco Note, owing from Gco to Mother’s Estate in the total amount of $XXXXXXXXXX. This receivable was also transferred on the incorrect assumption that the Estate had an interest in Mother’s Estate.

16. Pursuant to subsection 70(5), the Deceased was deemed to have disposed of the shares noted at Paragraphs 13, 14(a), and 15(a), immediately before the Deceased’s death for proceeds of disposition equal to the fair market value of such shares. The Estate was deemed to have acquired those same shares at a cost amount equal to that FMV.

17. After the distribution of cash to satisfy specified bequests under the Will to certain individuals totalling $XXXXXXXXXX, and other adjustments, the Final Donation Amount will be donated to the Qualified Donee. The executors have determined that the Qualified Donee satisfies the charitable purpose of the Deceased.

18. Gco owned an investment portfolio managed by a financial institution. Gco did not carry on an active business.

19. Fco owned an investment portfolio managed by a financial institution. Fco did not carry on an active business.

20. Cco owned an investment portfolio managed by a financial institution. Cco did not carry on an active business.

21. The Estate does not deal at arm’s length with any corporation identified in this letter.

22. The Estate deals at arm’s length with the Qualified Donee.

COMPLETED TRANSACTIONS

23. On XXXXXXXXXX of the common shares of Fco owned by the Spousal Trust were distributed to the Estate and the balance went to the other remainder beneficiaries of the Spousal Trust, at the request of those remainder beneficiaries. Such distribution was a capital distribution pursuant to subsection 107(2).

24. On XXXXXXXXXX, Hco was incorporated. The common shares were issued in exchange for future consideration, being the shares of Gco transferred to Hco by the Estate (and other shareholders of Gco), as described in Paragraph 27.

25. On XXXXXXXXXX, Bco was incorporated. The Estate subscribed for XXXXXXXXXX common shares of Bco for an aggregate subscription price of $XXXXXXXXXX and paid such subscription price from cash acquired by the Estate on and as a consequence of the death of the Deceased.

26. On XXXXXXXXXX, the debt owing by Gco to Mother’s Estate and the shares of Gco owned by Mother’s Estate were distributed to the Estate and the remainder beneficiaries of Mother’s Estate, at the request of those remainder beneficiaries. The amount of the receivable from Gco distributed to the Estate was $XXXXXXXXXX. This distribution was made as a result of a misunderstanding in the administration of Mother’s Estate. Accordingly, these assets are subject to negotiation for their repayment.

27. On XXXXXXXXXX, the Estate transferred all of its shares of Gco to Hco in exchange for XXXXXXXXXX common shares of Hco having an aggregate paid up capital of $XXXXXXXXXX and a cost amount of $XXXXXXXXXX. The Estate made a joint election under subsection 85(1) with Hco with respect to the transferred property. Such election was made in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purpose of the election was equal to the FMV of the transferred property, being $XXXXXXXXXX.

28. On XXXXXXXXXX, Gco and Hco amalgamated to form Eco. The Estate received XXXXXXXXXX common shares of Eco on the amalgamation, in exchange for its common shares of Gco. The XXXXXXXXXX common shares of Eco issued to the Estate on the amalgamation had an aggregate paid up capital of $XXXXXXXXXX and a cost amount of $XXXXXXXXXX. As a result of the amalgamation, Eco became indebted to the Estate in the amount of $XXXXXXXXXX (being the debt owing by Gco to Mother’s Estate distributed to the Estate less payments made on that debt).

29. On XXXXXXXXXX, Eco and Fco amalgamated to form Dco. The Estate received XXXXXXXXXX Class EF-1 preferred shares of Dco on the amalgamation, in exchange for its shares of Eco and its shares of Fco. The paid up capital of the Class EF-1 preferred shares of Dco was $XXXXXXXXXX. Immediately following the amalgamation, the Estate subscribed for XXXXXXXXXX common shares of Dco for $XXXXXXXXXX and paid such subscription price from cash acquired by the Estate on and as a consequence of the death of the Deceased. As a result of the amalgamation, Dco became indebted to the Estate in the amount of $XXXXXXXXXX.

30. On XXXXXXXXXX, the Estate transferred all of its preferred shares and common shares of Dco to Bco in exchange for XXXXXXXXXX Class RO-1 preferred shares of Bco having an aggregate paid up capital of $XXXXXXXXXX and a promissory note from Bco in the aggregate amount of $XXXXXXXXXX. The principal amount of the promissory note plus the paid up capital of the Class RO-1 preferred shares did not exceed the Hard ACB to the Estate of the shares of Dco. The Estate made a joint election under subsection 85(1) with Bco with respect to the transferred property. Such election was made in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purpose of the election was $XXXXXXXXXX.

31. On XXXXXXXXXX, certain investment assets of Dco were transferred to Bco in exchange for Class RO-2 preferred shares of Bco. Additionally, Bco assumed certain debts of Dco as payment for the investment assets. This debt assumption included the assumption of $XXXXXXXXXX owing to the Estate by Dco, which debt remains outstanding. Dco and Bco made a joint election under subsection 85(1) with respect to the transferred property. Such election was made in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purpose of the election was $XXXXXXXXXX. Additionally cash was transferred by Dco to Bco in exchange for Bco assuming certain debts of Dco, including a portion of the debt owing by Dco to the Estate in the amount of $XXXXXXXXXX. The total debt owing to the Estate as a result of the assumption of debt described herein was $XXXXXXXXXX. The remaining debt owing to the Estate by Dco was assumed by other corporations that received investment assets from Dco. These debts have since been settled, with the exception of $XXXXXXXXXX owing to the Estate.

32. On XXXXXXXXXX, Bco redeemed its Class RO-2 preferred shares held by Dco and issued a promissory note to Dco in satisfaction of the redemption price of $XXXXXXXXXX.

33. On XXXXXXXXXX, all of the shares of Cco owned by the Estate were transferred to Bco in exchange for XXXXXXXXXX Class RO-3 preferred shares of Bco having an aggregate paid-up capital and redemption amount of $XXXXXXXXXX and a promissory note in the amount of $XXXXXXXXXX. The promissory note plus paid up capital of the Class RO-3 preferred shares did not exceed the Hard ACB to the Estate of the shares of Cco. The Estate made a joint election under subsection 85(1) with Bco with respect to the transferred property. Such election was made in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purpose of the election was $XXXXXXXXXX.

34. On XXXXXXXXXX, Bco and Cco amalgamated to form Aco. The Estate received XXXXXXXXXX common shares of Aco having a paid up capital of $XXXXXXXXXX, on the amalgamation, in exchange for its shares of Bco. As a result of the amalgamation, Aco became indebted to the Estate in the amount of $XXXXXXXXXX, which was equal to the sum of the amounts owing to the Estate by Bco and Cco prior to the amalgamation.

35. On XXXXXXXXXX, Dco redeemed its preferred shares held by Aco and issued a promissory note to Aco in satisfaction of the redemption price of $XXXXXXXXXX.

36. On XXXXXXXXXX, Dco and Aco agreed to set-off their respective debts.

37. On XXXXXXXXXX, the shareholders of Dco resolved to surrender Dco’s Certificate of Amalgamation and dissolve Dco.

38. From XXXXXXXXXX until XXXXXXXXXX, Aco’s assets consisted of Investments acquired from Cco, Fco and Gco as a result of the transactions described above.

39. On XXXXXXXXXX, Aco donated a portion of the Investments to the Qualified Donee.

40. On XXXXXXXXXX, Aco liquidated the remainder of the Investments.

41. As of XXXXXXXXXX, Aco’s assets consisted of cash in the aggregate amount of $XXXXXXXXXX.

42. On XXXXXXXXXX, Aco owed the Estate $XXXXXXXXXX, consisting of the following credits and debits recorded since the date of the Deceased’s death:

a) credit of $XXXXXXXXXX as a result of the amount owed from Cco to the Deceased as of the date of his death;

b) credit of $XXXXXXXXXX as a result of the transfer of shares of Dco to Bco, as described in Paragraph 30;

c) credit of $XXXXXXXXXX as a result of the assumption of liabilities on the transfer of assets from Dco to Bco, as described in Paragraph 31;

d) credit of $XXXXXXXXXX as a result of the transfer of shares of Cco to Bco, as described in Paragraph 33;

e) credit of $XXXXXXXXXX as a result of a cash loan from the Estate;

f) credit of $XXXXXXXXXX as a result of a dividend to the Estate in XXXXXXXXXX;

g) debit of $XXXXXXXXXX as a result of payments to the Estate from Cco on XXXXXXXXXX (to fund incomes taxes owing by the Estate and certain cash bequests);

h) debit of $XXXXXXXXXX as a result of payments to the Estate from Cco on XXXXXXXXXX (to fund certain expenses owing by the Estate);

i) debit of $XXXXXXXXXX as a result of payments to the Estate from Cco on XXXXXXXXXX (to fund probate fees owing by the Estate).

43. Aco paid the Estate $XXXXXXXXXX on XXXXXXXXXX in satisfaction of the dividend that was previously credited to the Shareholder Loan Account. The current balance of the Shareholder Loan Account is $XXXXXXXXXX owing to the Estate.

PROPOSED TRANSACTIONS

The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of filing the applicable election forms, which will be filed within the applicable due dates, unless otherwise indicated, following the completion of the Proposed Transactions.

44. Aco will declare and pay a dividend in the aggregate amount of $XXXXXXXXXX on the common shares held by the Estate.

45. The payment relating to the dividend will be made to a separate account for the Estate and will not be not inter-mingled with other assets of the Estate.

46. The authorized capital of Aco will be increased to include XXXXXXXXXX Class SD-1 preferred shares, which will have an aggregate redemption price equal to the FMV of the XXXXXXXXXX common shares of Aco less the paid up capital of the XXXXXXXXXX common shares of Aco, which is anticipated to be approximately $XXXXXXXXXX. The Class SD-1 preferred shares will have a par value of $XXXXXXXXXX each and an aggregate paid up capital of $XXXXXXXXXX.

47. The directors of Aco will declare a stock dividend on the common shares of Aco and will issue XXXXXXXXXX Class SD-1 preferred shares of Aco in satisfaction of the dividend.

48. Aco will redeem the XXXXXXXXXX Class SD-1 preferred shares held by the Estate and will elect to have the deemed dividend resulting from the redemption be treated as a capital dividend pursuant to subsection 83(2). Aco will file a Form T2054 and the required documentation on the same day as the redemption. Aco will pay cash to the Estate in satisfaction of the redemption price.

49. Aco will repurchase the common shares of Aco for $XXXXXXXXXX, being the amount equal to their paid up capital, following which, Aco will issue one common share to the Estate for $XXXXXXXXXX.

50. Aco will repay the balance of the Shareholder Loan Account to the Estate, being approximately $XXXXXXXXXX.

51. Immediately before the time of the gift, the Estate will determine the Final Donation Amount. The Final Donation Amount will consist of the amount that the sum of:

• the cash received by the Estate on the redemption of XXXXXXXXXX of the Class SD-1 preferred shares of Aco as described in Paragraph 48;
• the cash received by the Estate on the repurchase of XXXXXXXXXX of the common shares of Aco as described in Paragraph 49; and
• the repayment of the Shareholder Loan Account as described in Paragraph 50

exceeds

• the amount of the expenses of the Estate, which will include the payment of the amount of the Gco Note to a beneficiary of Mother’s Estate.

52. On or before XXXXXXXXXX, pursuant to a deed of gift, the Estate will gift the Final Donation Amount to the Qualified Donee. There will be no consideration or other advantage to the Estate in respect of the Final Donation Amount.

PURPOSE OF THE PROPOSED TRANSACTIONS

53. The purpose of the transaction described at Paragraph 44 is to generate a refund of ERDTOH or NERDTOH, as the case may be.

54. The purpose of making the payment as described in Paragraph 45 is to ensure that the dividends received by the Estate are used to pay the Estate’s liabilities and are not donated to the Qualified Donee, unless an amount remains after the payment of liabilities, because the cash received in payment of the dividends would not constitute property that was acquired by the Estate on and as a consequence of the death of the Deceased or property substituted for that property, as required by paragraph 118.1(5.1)(b).

55. The purpose of the transactions described in Paragraphs 46 to 48 is to cause the FMV of the common shares, less the PUC of the common shares, to be paid to the Estate for donation to the Qualified Donee. The transaction is structured as the declaration of a stock dividend followed by the redemption of the shares issued in satisfaction of the stock dividend in order to satisfy the requirements of paragraph 118.1(5.1)(b) and the CRA’s position that cash paid as actual dividends cannot be substituted property.

56. The purpose of the transactions described in Paragraph 49 is to return the capital account of the common shares of Aco to the Estate in substitution for its common shares, while also issuing a new common share so that Aco will have one common share outstanding.

57. The purpose of the transaction described at Paragraph 50 is to cause the Estate to have cash available to transfer to the Qualified Donee.

58. The purpose of the transactions described in Paragraphs 51 and 52 is to cause the Estate to satisfy the testamentary instructions of the Deceased while also limiting the property donated to ensure that only property acquired by the Estate as a consequence of the death of the Deceased or property that was substituted for that property, is donated, and to close the Estate.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, additional information, proposed transactions and purpose of the Proposed Transactions and that the Proposed Transactions are completed in the manner described above we confirm the following:

A. Subsection 84(2) will not apply as a result of the payment of the Shareholder Loan Account described in Paragraph 50, in and by itself, to deem Aco to have paid, and the Estate to have received, a dividend on the Aco Shares held by the Estate.

B. For the purposes of paragraph 118.1(5.1)(b), the subject of the gift, being the Final Donation Amount described in Paragraph 51, is property that was acquired by the Estate on and as a consequence of the death of the Deceased or is property that was substituted for that property.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R12 issued on April 1, 2022 and are binding on the CRA, provided that the Proposed Transactions are completed within the time described in Paragraph 52.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, which if enacted, could have an effect on the rulings provided herein.

COMMENTS

Unless otherwise expressly confirmed, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

(a) the FMV or ACB of any property referred to herein, or the PUC in respect of any share referred to herein;

(b) the balance of the NERDTOH, ERDTOH, CDA or any other tax account for any corporation described herein;

(c) the Executor’s ability to complete the Proposed Transactions under the terms of the Will;

(d) the status of the Estate as a GRE;

(e) the amount of cash held by the Deceased on the date of death;

(f) whether any person described herein deals, or does not deal, with any other person at arm’s length; or

(g) any other tax consequence (including provincial tax consequences) relating to the Facts, Completed Transactions, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer or issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to, or in the event of, the operation of a price adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4-F3-C1, Price Adjustment Clauses, updated to November 26, 2015.

Yours truly,

XXXXXXXXXX
For Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch