Crombie REIT used a s.132.2 merger and a renunciation of most of the units otherwise issuable on the merger in order to eliminate a REIT corporate subsidiary held through an LP
Crombie REIT held the units and notes of a subsidiary unit trust (Crombie Subsidiary Trust), whose principal asset was most of the partnership interests, other than exchangeable LP units held by the Empire group, in a subsidiary LP (“Crombie LP”), which held real estate and a corporate subsidiary (“CDL”).
In a 2017 reorganization, the REIT first eliminated Crombie Subsidiary Trust by setting up a unit trust (“MFT”), having Crombie Subsidiary Trust transfer its assets to MFT under s. 107.4, distributing just enough units of MFT to its unitholders for MFT to qualify as a mutual fund trust, and then instigating a s. 132.2 merger of MFT into the REIT.
The REIT also did not want CDL to be subject to potential corporate income tax. Had the REIT now held CDL directly, this would have been accomplished by incorporating a subsidiary (“MFC”), distributing relatively modest shareholdings in MFC to its unitholders sufficient to qualify MFC as a mutual fund corporation, amalgamating MFC and CDL so that Amalco also qualified as a mutual fund corporation, and then instigating the merger of Amalco into the REIT under s. 132.2 – so that the former assets of CDL were now held directly by the REIT.
A complicating factor was that, as noted, CDL was held by a partnership (Crombie LP). Accordingly, Crombie LP first transferred its CDL shares to MFC under s. 85(2) in consideration for most of the shares of MFC (so that CDL could then be vertically amalgamated with MFC to form Amalco). On the s.132.2 merger of Amalco into the REIT, Crombie LP renounced the receipt of the REIT units that otherwise would be receivable by it on the redemption of its Amalco shares. CRA ruled that Crombie LP was not required to include any amount in its income as a result of the exercise of its right of renunciation.
Neal Armstrong. Summary of Crombie REIT Circular under Other – Internal S. 132.2/107.4 Mergers.