CRA rules on pipeline transaction where the subject company funds the payment of the terminal taxes

In a pipeline transaction involving a portfolio company whose shares had been stepped up to fair market value in the hands of the estate on the death of the deceased (A), it is proposed that the corporation lend the necessary funds to the estate to pay the terminal taxes of A. When the estate sells its shares of the portfolio company to a Newco for two promissory notes, the estate then assigns the first of these two notes to the portfolio company in repayment of the terminal-taxes loan. This first note then is extinguished by operation of law when the portfolio company is wound-up into Newco a year later – with payments of the second note by Newco to the estate commencing thereafter.

Neal Armstrong. Summary of 2020 Ruling 2019-0819191R3 F under s. 84(2).