CRA comments on the use of notes in hybrid pipelines to fund estate taxes or other liabilities

In 2018-0767431R3, the amount of the pipeline note paid in any single quarter in the first post-amalgamation year was not to exceed 15%, and in 2018-0780201R3, this percentage was 10%. CRA effectively intimated that these specific percentages and other “gradual repayment” particulars were offered up by the pipeline ruling applicant and were not imposed by it.

When asked if it is permissible for the estate to borrow funds from the pipeline corporation in order to pay its liabilities (e.g., for taxes) during the period in which the note is being repaid following the amalgamation of the pipeline corporation, CRA noted that as “an example,” this can occur in a hybrid pipeline transaction in which there is a preliminary redemption of shares of the estate for a note (subject s. 84(3)) with a resulting carryback of a loss under s. 164(6).

Neal Armstrong. Summary of 8 July 2020 CALU Roundtable Q. 6, 2020-0842241C6 under s. 84(2).