CRA rules on pipeline transaction for marketable securities company that generates full dividend refunds and a s. 164(6) carryback

CRA provided standard rulings for a pipeline transaction respecting a CCPC, with a portfolio of public company shares and other marketable securities, whose common shares were stepped up to their fair market value on the death of the deceased. Preliminarily:

• ACo redeemed all of its preferred shares (having full paid-up capital and ACB) by issuing notes.
• ACo generated a refund of its eligible refundable dividend tax on hand, or its non-eligible refundable dividend tax on hand, balances, through the purchase for cancellation (in consideration for a promissory note) of a sufficient number of its common shares..
• The executors will carry back the resulting capital loss under s. 164(6), with s. 40(3.61) thereby precluding the application of the s. 40(3.6) stop loss rule.

The pipeline proper transactions were then to be implemented under which:

1. The estate transfers the remaining ACo common shares to a Newco formed by it in consideration for a note and one Newco common share.
2. A redacted number of months later, ACo is amalgamated with Newco, or wound up into it under s. 88(1).
3. Thereafter the note issued in Step 1 begins to be repaid over a redacted period of time.

Between Steps 1 and 2, ACo (but not Newco) is permitted to partially repay the various notes issued by it.

Neal Armstrong. Summary of 2019 Ruling 2019-0822951R3 F under s. 84(2).