CRA ruled to permit the immediate receipt of cash on a pipeline so as to fund death taxes

CRA relaxed its longstanding position and accepted that, upon the sale of shares that had been stepped up on death under s. 70(5) to a Newco in a pipeline transaction, the estate could immediately receive cash derived from the surpluses of the company that had been indirectly held by the deceased taxpayer in order to fund the taxes payable under s. 70(5). Thus, it was not necessary to wait a year before accessing such cash derived from such surpluses.

CRA also provided an interest deduction ruling on a transaction in which Opco pays a preferred stock dividend on its common shares whose amount does not exceed its accumulated profits, and then uses a bank loan to redeem such preferred shares (which is described as entailing the replacement of the capital represented by the preferred shares by the bank loan).

Neal Armstrong. Summaries of 2019 Ruling 2018-0789911R3 F under s. 84(2) and s. 20(1)(c)(i) and of Éric Hamelin, “Post Mortem Pipeline: The CRA Relaxes Its Position,” Tax for the Owner-Manager, Volume 20, Number 3, July 2020, p. 6 under s. 84(2).