CRA rules on hybrid pipeline transaction

CRA has ruled on a sort of hybrid post-mortem transaction in which a portion of the estate’s common shares of "Investments" (which holds marketable securities and cash) are redeemed in its hands for a promissory note (thereby giving rise to a capital loss which will be carried back under s. 164(6) to the terminal year) and it sells the balance of its shares to a "Newco" in consideration for a Newco promissory note. Under the latter pipeline transaction, Investments will be amalgamated with Newco after one year, and the notes will thereafter be repaid at the rate of 25% per quarter. These 12 mo./25% parameters also managed to escape the CRA propensity for over-redaction in 2014-0559481R3 F.

Neal Armstrong. Summary of 2014 Ruling 2014-0540861R3 F under s. 84(2).