CRA rules on stepping-up PUC in a pipeline transaction

An estate, which on death acquired preference shares of a portfolio investment company (Investmentco) at a stepped-up tax cost, will effectively also step-up the paid-up capital of its shareholding by selling its prefs to a Newco for Newco prefs with a high PUC. After a decent (redacted) period, Newco will amalgamate with Investmentco, and the estate will start gradually retracting its (high PUC/basis) prefs.  This is a variation on the more typical "pipeline" transactions (most recently in 2013-0503611R3, 2012-0464501R3 and 2012-0401811R3) where the estate sells its shares instead for a promissory note of Newco.

This provides some additional comfort for transactions in which a resident individual such as a REIT steps-up PUC by transferring its shares of Target to Newco for high-PUC Newco shares, and causes their amalgamation.

Neal Armstrong. Summary of 2014 Ruling 2014-0526361R3 F under s. 84(2).