CRA rules on a pipeline bump transaction

CRA ruled on pipeline transactions respecting common shares of Opco which the deceased held on death, in which:

  • the estate redeems common shares of Opco on which the capital gains exemption was claimed, resulting in a deemed dividend and a capital loss, which is carried back under s. 164(6)
  • the estate transfers its common shares of Opco to the Newco newly-incorporated by it mostly in consideration for a demand note of Newco
  • Opco continues to carry on its business for at least 12 months thereafter, and is then permitted to amalgamate with Newco
  • in connection with the amalgamation, Amalco designates, in its return of income for its first taxation year, an amount under ss. 87(11) and 88(1)(c) and (d) to bump the ACB of land that had been held continuously by Opco from before the date of the death until immediately prior to the amalgamation
  • the Newco note is gradually repaid over a period of at least one year after the amalgamation, with Amalco continuing to carry on the business.

Neal Armstrong. Summaries of 2020 Ruling 2020-0860231R3 under s. 84(2) and s. 88(1)(d.3).