The s. 88(1)(c)(vi) bump-denial rule can be a trap for the unwary in post-mortem plans involving grandchildren

The bump-denial rule in s. 88(1)(c)(vi) provides that a person who was a specified shareholder at any time during the series of transactions and before the parent last acquired control of the subsidiary cannot receive bumped property unless that person is also a specified person. This rule can be a trap for the unwary in post-mortem situations involving grandchildren.

As an example, the son (“Son”) of the deceased was entitled to 60% of the estate (holding the shares of Sub), and the children of the daughter (“Daughter”) of the deceased were entitled to 40%. In a pipeline transaction, the estate transfers all of Sub’s shares to a newco (“ParentCo”) for ParentCo shares, ParentCo and Sub amalgamate, and Amalco distributes property to the estate.

Under the related person test in s. 88(1)(c.2)(ii), the estate was deemed to be a corporation owned on a 60/20/20 basis by the beneficiaries. Furthermore, under s. 88(1)(c.2)(i)(B)(II) (deeming the children of a deceased individual to be related to their siblings - and to their nephews and nieces, but only if the latters’ parent is also deceased), the children of Daughter were not related to Son because Daughter was still alive. Consequently, the children would not be related to the deemed corporation, and their receipt of any of the bumped property would violate s. 88(1)(c)(vi) so as to deny the whole bump.

Neal Armstrong. Summary of David Carolin, Marissa Halil, and Manu Kakkar, “Grandchildren Can Trump the Bump?,” Tax for the Owner-Manager, Vol. 26, No. 2, April 2026, p. 6 under s. 88(1)(c)(vi).