CRA considers that an employer “Buyco,” intended to give employees capital gains treatment for their shares, is not at arm’s length

An employer (Opco) incorporates a special-purpose corporation (Buyco) in order to provide capital gains treatment on the purchase of shares previously issued to employees under an employee share ownership plan.  CRA (citing RMM and Petro-Canada) considers Buyco to not be dealing at arm’s length with the employees: CRA characterizes Buyco as an accommodation party not acting in its own separate economic interest.

Accordingly, in 2012 CRA declined to give rulings that s. 84.1 would not apply to generate a deemed dividend on the cash sale price.

Neal Armstrong.  Summary of November 2012 CRA Panel discussion, 2013-0479402C6, under s. 251(1)(c).