Joint Committee notes anomalies in the stock buyback rules

Anomalies noted by the Joint Committee respecting the stock buy-back rules in Bill C-59 include:

• Where “Acquisitionco,” after acquiring “Targetco” (whose shares take a while to become delisted), vertically amalgamates with it, the amalgamation will not qualify as a “reorganization transaction” under para. (b) of the definition, because the equity holders of the covered entity (Acquisitionco as the holder of Targetco shares) do not receive equity of Amalco, as such equity is instead cancelled for no consideration.
• Where Targetco instead is wound-up into Acquisitionco, this may not satisfy the requirement under para. (c) of the "reorganization transaction" definition that all or substantially all of the property of Targetco be distributed to Acquisitionco, where more than 10% of Targetco's assets are debt or equity of Acquisitionco (which could have been held prior to the acquisition), since such shares or debt will be extinguished by operation of law on the wind-up rather than being "distributed" to Acquisitionco.
• Where the shareholders of Targetco are to receive a combination of cash and shares of Acquisitionco, the cash component is included in Variable B of the formula in proposed s. 183.3(2) (so that it is subject to the tax) because equity of a covered entity (Targetco) is acquired in the taxation year pursuant to a reorganization transaction described in para. (a) of that definition and a portion of the consideration received by a holder for the Targetco shares is not equity consideration described in para. (a) or (b) of the definition of reorganization transaction.

Neal Armstrong. Summaries of Joint Committee, “Subject: Proposed Part II.2 Tax – Tax on Repurchases of Equity – ‘Reorganization Transaction,’ 26 March 2024 Joint Committee Submission under s. 183.3(1) – reorganization – (b), (c), s. 183.3(2), s. 183.3(2) – B.