CRA rules on a post-mortem pipeline with a 24-month implementation timeline, and an earlier note repayment to fund terminal return taxes
21 August 2024 - 1:02am
CRA ruled on a straightforward post-mortem pipeline concerning the estate of the deceased - who had died holding high-ACB preferred shares of Opco and common shares and preferred shares of the Holdco holding the Opco common shares – providing for:
- Opco redeeming preferred shares held by the estate, giving rise to a deemed dividend and a capital loss, which the estate carried back under s. 164(6).
- The estate transferring its Holdco shares under s. 85(1) to Newco (newly formed by it) in exchange for a Note of Newco whose principal was limited in accordance with s. 84.1(2)(a.1) to reflect that the estate had claimed the capital gains deduction, and Newco common shares for the balance.
- Newco using proceeds of interest-bearing loan (made on a back-to-back basis by Opco to Holdco, and by Holdco to Newco) to repay a portion of the Note so as to fund the payment by the estate of income taxes arising in the deceased’s terminal return.
- At least one year following 2, Newco and Holdco amalgamating.
- Over the following year (or more), the Note being gradually repaid.
Neal Armstrong. Summary of 2024 Ruling 2023-0993651R3 under s. 84(2).