CRA rules on a pipeline transaction for a trust realizing a s. 104(4)(b) gain and using a non-controlled Newco

Trust 1, a discretionary inter vivos trust for the family of A, holding preferred shares of a Holdco (which, in turn, wholly-owned Opco) was deemed pursuant to s. 104(4)(b) to have disposed of, and reacquired, all its property including those preferred shares at FMV on its 21st anniversary. The common shares of Holdco were held by a second discretionary inter vivos family trust (Trust 2), which apparently had not reached its 21st anniversary.

CRA provided the usual rulings on a pipeline transaction pursuant to which:

  • A company controlled by A (Newco 1) will incorporate Newco 2 and subscribe for special voting shares.
  • Trust 2 will transfer its Holdco common shares to Newco 2 on a s. 85(1) rollover basis for non-voting common shares, and Trust 1 will transfer its Holdco preferred shares to Newco 2 in consideration for non-voting preferred shares of Newco 2 whose PUC will equal the ACB of the transferred shares.
  • One year later, Newco 2 will start making phased reductions of the PUC of its preferred shares, which will be distributed in part by Trust 1 to its beneficiaries.

Neal Armstrong. Summary of 2022 Ruling 2022-0933261R3 F under s. 84(2).