CRA rules on a pipeline transfer by an inter vivos trust of preferred shares (stepped-up under s. 104(4)(b)(ii)) for notes

A discretionary inter vivos family trust, settled almost 21 years ago, decided that it would distribute only a portion of its preferred shares of Holdco 2 (with an investment portfolio) to its two principal beneficiaries (Child 1 and Child 2), so that it would realize a capital gain on the remaining shares on the 21^st anniversary.

CRA ruled on pipeline transactions in which the trust would transfer its remaining Holdco 2 preferred shares to another existing family holding company (Holdco 1) in consideration for Notes 1, 2 and 3 of Holdco 1, and then distribute (apparently, immediately) Notes 2 and 3 pursuant to s. 107(2) to Child 1 and 2, respectively and receive repayment of Note 1 to fund its capital gains tax. The trust will then be wound-up pursuant to s. 107(2) and, after [one?] year, Holdco will commence to repay Notes 1 and 2, in tranches not exceeding specified maximums.

Neal Armstrong. Summary of 2023 Ruling 2023-0986521R3 F under s. 84(2).