CRA rules on donation of pubco shares to a private foundation followed by immediate buy-back

A privately-held Canadian corporate group is using its shareholdings in a public company to maximize the benefit from a corporate contribution to a charitable foundation established by the spouse of one of their individual shareholders. One of companies in the group is donating its shares to the foundation (claiming the s. 38(a.1) exemption), with the Foundation then immediately selling those shares to another group company for cash. Some related transactions occur in order to utilize the benefit of the s. 110.1 deduction for charitable donations.

At the completion of the reorganization, a newly-formed Amalco is being wound-up into its parent, Newco. At the time of the winding-up, Amalco holds Newco preference shares. CRA ruled that the cancellation of these shares on the wind-up will not give rise to a deemed dividend under s. 84(3) (see also 2012-0450821I7 F).

Neal Armstrong. Summaries of 2014-0532201R3 under s. 38(a.1) and s. 84(3).