CRA rules on a classic pipeline with a slow note repayment schedule

CRA ruled on classic postmortem pipeline transactions under which:

• Holdco, holding portfolio investments, will repurchase and redeem a portion of its shares held by the estate, with the resulting deemed dividends designated as eligible dividends, and the resulting capital loss carried back under s. 164(6);
• the estate will transfer all its common shares of Holdco on an s, 85(1) rollover basis to a Newco in consideration for a demand promissory note and preferred shares;
• after one year, Holdco and Newco will amalgamate to form Amalco; and
• Amalco will gradually repay the note held by the estate at a rate of 1/3 of the original principal amount each year.

Neal Armstrong. Summary of 2024 Ruling 2024-1031041R3 F under s. 84(2).