CRA rules on hybrid post-mortem 164(6)/pipeline transactions

CRA has provided the usual rulings for a pipeline transaction in which the estate with a resident beneficiary sells a company (Opco) with apparently some sort of real estate business to a Newco for consideration consisting mostly of a note, followed by an amalgamation of the two companies and the repayment by Amalco to the estate of the note over time. These pipeline transactions are to be immediately preceded by transactions in which the estate utilizes Opco's capital dividend account to step up the ACB of a portion of its Opco shares and also to redeem those Opco shares so as to generate a capital loss that can be carried back under s. 164(6).

The ruling letter stipulates that the amalgamation will occur no sooner than 12 months after the sale to Newco, and that thereafter the note will be paid off no faster than 10% per quarter for the first year. This contrasts with:

• 2018-0767431R3, where these two parameters were 12 months and 15% per quarter in the first year;
• 2014-0540861R3 F and 2014-0548621R3 - 12 months and 25% per quarter; and
• 2016-0670871R3 - 30 months and 15% per quarter.

Neal Armstrong. Summary of 2018 Ruling 2018-0780201R3 under s. 84(2).