CRA rules on a pipeline transaction implemented after a discretionary inter vivos trust voluntarily realizes capital gains on its 21st anniversary
Two discretionary inter vivos trusts, with an individual (“Father”) and his child (“Child”) as the beneficiaries (both resident in Canada) and which had been settled by Father’s parent, held shares of a portfolio investment company and its holding company. In order to respect the wishes of the settlor, the trustees determined that most of the capital and accumulated income of the two trusts would be retained rather than distributed on the 21st anniversaries of the trusts’ formation. Accordingly, the two trusts realized capital gains pursuant to s. 104(4)(b)(ii) on that anniversary.
The trusts were then to engage in pipeline transactions in which the two companies’ shares were to be transferred to a ULC Newco in consideration mostly for notes, and then convert those notes to high-PUC shares of the ULC – and only after a number of years, might ULC be amalgamated with the two companies (which would have been continued to the same jurisdiction as the ULC). The ULC will not make substantial distributions for quite some time otherwise than to fund the taxes payable by the two trusts under s. 104(4).
Neal Armstrong. Summary of 2020 Ruling 2020-0848081R3 F under s. 84(2).