CRA rules on transactions to increase the PUC of shares of Cdn. parent in its Canadian subsidiary before the re-domestication of parent engaging s. 128.1(4)

After being acquired by a foreign acquiror, a Canadian mining company (Parent Amalco) re-domesticated to a foreign jurisdiction (presumably, the U.S.) so that it was subject to the s. 128.1(4) emigration rules. Before this continuance out of Canada, it engaged in transactions to increase the PUC of the shares of its principal Canadian subsidiary, e.g., transferring under s. 85(1) a royalty interest and shares of other Canadian subsidiaries to that subsidiary for treasury shares.

CRA ruled that the PUC-increase steps were effective, and would not be altered by s. 245(2). However, it required a representation of the subsidiary that it will not use its retained earnings or contributed surplus in computing its equity amount for s. 18(5) purposes without first obtaining a positive ruling.

Neal Armstrong. Summary of 2020 Ruling 2019-0817051R3 under s. 89(1) – paid-up capital.