CRA position accommodating extracting cash on an amalgamation may facilitate surplus stripping

2018-0785921E5 and 2017-0696821E5 indicate that where there is a distribution of cash and shares to shareholders of predecessor corporations pursuant to an amalgamation, the conditions of s. 87(1)(c) will be met, while the receipt of the non-share consideration will preclude s. 87(4) from applying, so that such shareholders will realize a capital gain or loss based on the value of the shares and cash received from Amalco.

This suggests that surplus of a corporation can be extracted on its amalgamation as cash or other non-share consideration. S. 84(2) risk can be minimized by continuing to operate the businesses of the predecessors and taking the non-share consideration as a note that is drawn down over time.

Neal Armstrong. Summary of Kenneth Keung and Balaji Katlai, “CRA Essentially Approves Surplus Stripping by Amalgamation,” Canadian Tax Focus, Vol. 11, No. 3, August 2021, p. 1 under s. 84(2).