CRA rules on a variation from a standard pipeline transaction

CRA ruled on an elegant post-mortem pipeline transaction.

The steps started in the usual way, with the estate to make a s. 86 exchange of its common shares of an investment corporation for preferred shares (and then subscribe for common shares) so that a portion of its preferred shares could be redeemed for a note so as to recover the balance of its ERDTOH and NERDTOH accounts and produce a capital loss that could be applied under s. 164(6) to the terminal year.

The estate was then to transfer all its shares of the investment corporation under s. 85(1) to a Newco in exchange for common shares of Newco.

After 12 months, Newco will reduce the PUC of its common shares by an amount equal to the PUC (apparently, all the PUC) of its common shares in consideration for the issuance of eight non-interest-bearing notes, which will not be repayable earlier than at specified successive quarterly intervals, commencing one day after the day of issuance in the case of the 1^st note, and so on, so that the 8^th note is not repayable before the 8^th quarter following such issuance.

One year later, the investment corporation and Newco will be amalgamated to form Amalco.

Neal Armstrong. Summary of 2025 Ruling 2025-1052291R3 F under s. 84(2).