CRA rules on a pipeline involving a deferred distribution of portfolio assets from the corporation held on death

CRA labelled it a “post-mortem hybrid pipeline,” so that must have been what it was despite an unusual form.

An individual died holding shares of a portfolio investment company (“Investments”) directly and through a holding company (“Newco”), so that the estate acquired those shares with their basis stepped up under s. 70(5). Investments redeemed various shares held by the estate for a note (giving rise to deemed dividends and capital losses which were carried back under s. 164(6)), and the estate then disposed of all its shares of Investments to Newco in consideration for a further note. Investments then sold its stock market investments to the estate beneficiaries (four testamentary trusts) for four trust notes.

It was now proposed that Investments be wound-up into Newco under s. 88(1), and that the estate distribute, to its beneficiaries, most of the Newco notes owing to it by Newco, with the beneficiaries (the four trusts) then presumably using these notes as the currency to settle the trust notes owing by them to Newco. Newco would then by wound-up into the estate pursuant to s. 88(2).

Neal Armstrong. Summary of 2021 Ruling 2020-0865901R3 F under s. 84(2).