CRA rules on s. 55(3)(a) real estate spin-off beneath new holdco for unrelated shareholders

In 2015-0570021E5 F, CRA confirmed that s. 55(3.01)(g) generally permitted two unrelated individuals to spin-off real estate from a jointly owned Opco to a newly-incorporated jointly-owned Realtyco provided that they first interposed a holding company between themselves and their two companies (Opco and Realtyco). CRA has now ruled (as well as providing an opinion under the July 31, 2015 draft amendments) on somewhat similar transactions, which start with individuals (who apparently are unrelated for s. 55 purposes) holding their shares of Opco through their respective holding companies, then entail the holding companies transferring their Opco shares to a common holding company (Holdco) and, following a spin-off of Opco real estate to a new subsidiary of Holdco (Realtyco), Holdco ends up holding each of Opco and Realtyco as standalone subsidiaries.

The proposed transactions contemplate that CRA would approve Opco cutting short its taxation year (with CRA consent) immediately before the spin-off by it of the real estate to Realtyco, so as not to lose CCA claims. "The fiscal period of Realtyo will be fixed at a date which will permit the avoidance of Part IV tax circularity."

Neal Armstrong. Summaries of 2015-0605901R3 F under s. 55(3.01)(g) and s. 249.1(7).