CRA rules that providing for a partial acceleration of a forward contract did not de-grandfather it from the synthetic disposition rules

A monetization arrangement that was grandfathered from application of the synthetic disposition rules for deferring gain on the shareholding of a holding company (“Holdco A”) in a public company entailed a secured loan from a financial institution (“FI”) to Holdco A and a cash-settlement forward agreement between Holdco A and FI. A reference index was used in determining both the interest rate under the loan and the reference price under the forward agreement.

The synthetic disposition rules apply to agreements and arrangements entered into after March 20, 2013, and to earlier agreements or arrangements whose terms are extended after that date. CRA ruled that the index substitution would not result in the application of s. 80.6 (i.e., no loss of the deferral).

CRA ruled that amendments (represented not to give rise to a novation) to the forward agreement to provide for the right to accelerate the maturity date under the forward agreement in respect of part of the reference shares would not engage the application of s. 80.6.

Neal Armstrong. Summary of 2022 Ruling 2022-0930901R3 F under s. 80.6.