CRA rules on a classical 24-month pipeline transaction for an investments company whose portfolio had performed poorly

CRA ruled on a classical post-mortem pipeline transaction carried out in relation to an Opco with an investments business and whose shares on the death of the individual had an aggregate FMV less than the aggregate redemption value of the outstanding preferred shares (so that the Opco common shares were considered to have a nominal FMV). Under the proposed transactions:

• the estate transfers all its shares of Opco on an s. 85(1) rollover basis to Newco in consideration for a demand note and Class B non-voting, non-cumulative preferred shares of Newco.
• each of the children, who are equal beneficiaries, transfer their preferred shares and common shares of Opco on an s. 85(1) rollover basis to Newco in consideration for Class C non-voting, non-cumulative preferred shares of Newco.
• at least 12 months later, Newco and Opco amalgamate, with the note then being repaid on a quarterly basis over a minimum period of one year, with Amalco then being wound up into the estate.

Neal Armstrong. Summary of 2024 Ruling 2024-1027631R3 F under s. 84(2).