5 May 2026 CALU Roundtable Q. 4, 2026-1089341C6 - Subsection 84(2) – Timing of Amalgamation in Post-Mortem Pipeline/Bump Planning

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. Whether the amalgamation, in and of itself, constitutes a distribution or appropriation of funds or property for purposes of subsection 84(2)?

2. Whether the amalgamation, in and of itself, constitutes a reorganization of the business or businesses carried on by the subsidiary?

3. Whether the timing of the amalgamation, in and of itself, is a factor in determining whether subsection 84(2) is applicable?

Position: See response below

Reasons: Wording of the Act and previous positions.

2026 CALU Roundtable – May 5, 2026

Question 4 – Subsection 84(2) – Timing of Amalgamation in Post-Mortem Pipeline/Bump Planning

Background

In the context of post-mortem tax planning, a “pipeline” structure is sometimes implemented to minimize double taxation that could otherwise arise as the consequence of the death of a shareholder. In addition, the “bump” provisions under paragraph 88(1)(d)(footnote 1) may also be used to facilitate this planning by increasing the cost base of certain corporate-owned property, consistent with the legislative intent of minimizing double taxation.

A concern that is sometimes raised is whether an amalgamation or windup required to implement bump planning, that is executed within a short period of time after the death of the shareholder, could trigger a deemed dividend under subsection 84(2), which applies where funds or property of a corporation are distributed or otherwise appropriated to its shareholders on the winding-up, discontinuance, or reorganization of its business. However, a delay in the implementation of the amalgamation or windup could adversely affect the bump “room” available under paragraph 88(1)(d).

Fact Situation

Consider the following series of steps:

• Immediately before death, Shareholder A owns all of the shares of a corporation (the “Subsidiary”).
• Shareholder A’s estate (the “Estate”) forms a new corporation (the “Parent”) and subscribes for common shares of the Parent for a nominal amount.
• The Estate’s shares of the Subsidiary are transferred to the Parent and the Parent issues a promissory note to the Estate as consideration.
• The Subsidiary and the Parent amalgamate (or the Subsidiary is wound up into the Parent) within a short period of time after the death of the Shareholder, and the cost amounts of properties, other than property listed in subparagraphs 88(1)(c)(iii) through (vi), are increased within the limits specified in paragraph 88(1)(d).

Questions

Can the CRA confirm that:

1. The amalgamation or windup, in and of itself, does not constitute a distribution or appropriation of funds or property for purposes of subsection 84(2).

2. The amalgamation or windup, in and of itself, does not constitute a reorganization of the business or businesses carried on by the Subsidiary.

3. Although the determination of whether a business or businesses being carried on by the Subsidiary has been wound up, discontinued or reorganized may wholly or partially be based on the time frame within which distributions of property from the Subsidiary are being made, the timing of the amalgamation or windup in and of itself is not a factor in determining whether subsection 84(2) is applicable.

CRA Response

Briefly, subsection 84(2) applies on the distribution or appropriation of funds or property of a Canadian-resident corporation in any manner whatever to or for the benefit of its shareholders, on the discontinuance, winding-up or reorganization of the business of the corporation.

Our Directorate has issued several favourable advance income tax rulings on, among others, the potential application of subsection 84(2) to post-mortem pipeline strategies on a case-by-case basis, after a review of all the facts and circumstances surrounding each specific situation.

In almost each case, arguably in order to address the potential application of subsection 84(2), the proposed transactions submitted by the taxpayers provided that, among others, the original corporation would remain a separate and distinct entity from the pipeline corporation and would not be wound up or amalgamated with the pipeline corporation or another corporate entity for a period of at least one year. In addition, the original corporation would continue to carry on business during that particular period of time.

Where taxpayers wish to proceed in a manner different from that described above, they may consider requesting an advance income tax ruling in order to obtain certainty regarding the application of subsection 84(2).

Olivier Bergeron
2026-108934
May 5, 2026

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. Unless otherwise stated, all references to a statute are to the relevant provision of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the Act), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (the Regulations)