CRA issues a pipeline ruling providing for the complete extraction of corporate surplus in under two years

CRA has provided a ruling on a "pipeline" transaction in which an estate holding the common shares of a portfolio investment company, whose adjusted cost base had been stepped-up on death, sells those shares to a Newco for a Newco Note, with "Investmentco" then being wound-up into Newco one year later so that the corporate assets of Investmentco can be used to pay down the Newco Note.

In addition to the fact that Investmentco only has liquid assets (which may raise greater surplus-stripping issues – see 2011 STEPs Roundtable, Q. 5 2011-0401861C6, although CRA has ruled on portfolio investment companies before – see 2013-0503611R3), what is interesting is that the ruling specifies that the note will be paid off in four quarterly instalments commencing right after the wind-up - whereas most previous rulings as published have been vague or indefinite as to the repayment schedule. (The ruling expressed the times in alphabetic form - "one year" and "each trimester" - rather than in Arabic form, which seems to be automatically redacted.)

Neal Armstrong. Summary of 2015 Ruling 2014-0559481R3 F under s. 84(2).