A retroactive amendment to s. 212.1(6)(b) is intended to accommodate a pipeline transaction by a GRE with a non-resident beneficiary

In a pipeline transaction where an estate with a non-resident beneficiary transfers its shares of Opco to a Newco in consideration for a note of Newco, Newco will be deemed under the current version of the s. 212.1(6)(b) conduit rule to pay to the non-resident beneficiary a dividend (subject to Part XIII tax) based on the note amount, that is generally proportionate to the relative FMV of that beneficiary's interest in the estate. If the Opco shares instead are transferred by the estate to Newco for high-PUC Newco shares, that PUC will be suppressed by the same amount.

An August 12, 2024 draft amendment to s. 212.1(6)(b) would (retroactively to the February 26, 2018) exclude, from the application of the above look-through rule, dispositions of shares by a graduated rate estate (GRE) which had acquired those shares upon the death of a Canadian resident individual.

Observations include:

• This amendment applies, in the case of resident trusts, to trusts that are GREs at the time of the share disposition, so that the amendment will not provide relief if the transfer occurs after the 36-month period for being a GRE has expired (or GRE status is otherwise compromised), or the subject shares are held in an alter ego, spousal, or joint partner trust.
• The amendment will provide no relief if the deceased was a non-resident on death, even if the estate is resident in Canada because of Canadian-resident executors.
• The amendment only applies to shares "acquired... on and as a consequence of" the individual's death. Accordingly, if the shares acquired by the GRE on death are then exchanged before the pipeline transaction, for example, on a share-for-share exchange to isolate value in new preferred shares, the amendment may not apply.

The amendment also extends the deadline for a refund application under s. 227(6) to 180 days from the date on which the amendment receives royal assent.

Neal Armstrong. Summary of Kyle Lamothe and Alexander Demner, “Retroactive Relief from section 212.1 ‘Look-Through’ Rules Proposed for Post Mortem Pipelines,” Tax for the Owner-Manager, April 25, 2025, Vol 25, No. 2, p. 4 under s. 212.1(6)(b).