Additional challenges often arise where a voluntary disclosure is made by an executor in respect of a deceased taxpayer:

• In light of the requirement to make payment of the unpaid taxes with submission of the disclosure package, the estate funds might be in an offshore account, payments from which would trigger international reporting to CRA (thereby alerting it prematurely, i.e., before submission of the package).
• Making a voluntary disclosure generally will result in the estate owing more tax, which could increase potential liability to the executor under s. 159 or 160.
• The executor may often lack information regarding the extent of the non-disclosure by the deceased, for example, how long an offshore account was held or how much income was generated therefrom, thereby creating a risk that CRA may not consider that its requirement for reasonable efforts to estimate income for the voluntary disclosure has been satisfied.
• The executor may not be aware of the reasons why the deceased had not fully complied with the applicable tax obligations and, therefore, may not be in a position to demonstrate that the disclosure should be accepted under the more favourable general program.
• IC00-1R6 states that enforcement action taken against a taxpayer will also invalidate the voluntariness of disclosure by related taxpayers, including those related through trust-specific relationships. Accordingly, in a situation where voluntary disclosure by an estate is also required, for example, where an undisclosed offshore account was not identified until a number of years after the death, a non-compliance letter issued by CRA to the estate (or the deceased) will invalidate the pending voluntary disclosure by the deceased (or the estate).

Neal Armstrong. Summary of Dean Blachford and Ella Sui, “Filing a Voluntary Disclosure for a Deceased Taxpayer,” Tax for the Owner-Manager, Vol. 25, No. 2, April 2025, p. 14 under s. 220(3.1).

There are some contrasts in the ability to carry out an estate freeze following a spin-off in intended reliance on the s. 55(3)(a) exception, and following a butterfly spin-off. Here is one example.

Suppose that Dad and Son, who are the 50-50 shareholders of Opco, effect a split-up reorganization in favour of Dadco and Sonco. However, as part of the same series, Son freezes Sonco in favour of Son Trust but retains control of Sonco. If even one of the beneficiaries of the trust was not related to Son (e.g., a nephew or cousin), Son Trust would be deemed pursuant to s. 55(5)(e)(ii) and (iii) not to be related to Sonco, so that the freeze would result in an increase in interest described in s. 55(3)(a)(ii) or (v), i.e., the s. 55(3)(a) exemption would not be available.

Suppose instead that the 50-50 shareholders of DC are Brother and Sister who, by virtue of s. 55(5)(e)(i), are deemed to be unrelated, and that they effect a split-up butterfly in favour of their respective TCs. In this context, s. 55(3.1)(b)(i) relevantly provides that, except in specific carve-out situations, any person who disposes of property within the butterfly series must be related to the acquirer of the property. Furthermore, s. 55(3.1)(b)(i)(C) establishes a continuity rule requiring that where property is disposed of within the butterfly series in succession (i.e., where there is a disposition of property, substituted property, or of any further substituted property in a continuous sequence), the final acquirer in that chain must be related to the original vendor at the start of the succession.

If the TC of Brother effects an estate freeze in favour of a trust, it would appear that s. 55(3.1)(b) would not apply because the trust would subscribe for shares rather than receiving them in substitution for other shares—and that this could be the case even if some of the beneficiaries of the trust were not related persons.

Neal Armstrong. Summaries of David Carolin and Manu Kakkar. “Freezes and Butterflies: Who Said Freezes are Easy?”, Tax for the Owner-Manager,” Vol. 25, No. 2, April 2025, p. 9 under s. 55(3)(a)(ii) and s. 55(3.1)(b)(1)(C).

Parent acquired all the shares of another taxable Canadian corporation (the Subsidiary), whose only property was a share of a mutual fund corporation (MFC) with a low ACB.

One month later, the Subsidiary exchanged its MFC share on a rollover basis pursuant to a s. 132(2) qualifying exchange for two units of a mutual fund trust (MFT) to which all the MFC assets were transferred. One month later, there was a short-form amalgamation of Subsidiary with Parent described in s. 87(11).

In finding that the s. 88(1)(d) bump was not available respecting the MFT units because the Subsidiary did not satisfy the requirement in the s. 88(1)(c) midamble that it have held, without interruption, those units between the acquisition of control of the Subsidiary and the distribution of the units on the amalgamation, CRA noted that there was no continuity rule deeming the MFT to be a continuation of the MFC after the qualifying exchange, nor was there any rule deeming the MFT units to be the same property as the MFC share held prior to the qualifying exchange.

Neal Armstrong. Summary of 4 March 2025 External T.I. 2024-1009691E5 F under s. 88(1)(c).

The respondent (“108”) was a BC company whose shareholder was a foreign national (Mr. Oeri), so that 108 was a “foreign entity” for purposes of the Property Transfer Tax Act (BC) (the “PTTA).

The chambers judge had found that an acquisition of a BC residential property by 108 was not subject to the additional transfer tax (“ATT”) of 20% imposed under the PTTA for acquisitions of such a property by a foreign entity because inter alia 108 acquired the property as agent for the common law spouse of Mr. Oeri (Ms. Sui), who was a Canadian permanent resident.

In reversing this finding and concluding that the purchase was subject to the ATT, Horsman JA referred to prior BC cases that “establish that, subject to statutory exemptions, property transfer tax is payable by the person to whom the legal estate is transferred (the 'transferee'), regardless of whether another person has beneficial ownership” and concluded:

Regardless of whether 108’s relationship with Ms. Sui could be characterized as an agency or a trust, or both, 108’s liability to pay the ATT arose on the registration of the transfer of the legal estate to 108.

Neal Armstrong. Summary of British Columbia v. 1084204 B.C. Ltd., 2025 BCCA 110 under PTTA, s. 1 – taxable transaction – (a)(i).