CRA rules on a combined pipeline and split-up butterfly
CRA ruled on a combined pipeline and split-up butterfly transaction respecting DC, which invested in marketable securities, and the shares in which passed to the estate with their adjusted cost based having been stepped-up under s. 70(5). DC then transferred its marketable securities to three transferee corporations (TCs) for the three beneficiaries in consideration for “butterfly shares” – but with DC holding onto the notes that it received on the immediate redemption of the butterfly shares for a redacted period of time. After that, DC was wound-up into the TCs, thereby resulting in deemed winding-up dividends and in the notes being extinguished on their being assigned to the TCs.
DC had refundable dividend tax on hand. This sequencing of the two deemed dividends (coupled with the appropriate choice by the TCs of their first year end) avoided Part IV tax circularity issues.
The ruling letter specified that thereafter, the TCs sell their remaining investments and distributed the proceeds on a specified gradual basis.
Neal Armstrong. Summary of 2017 Ruling 2016-0646891R3 under s. 84(2).