CRA issues a pipeline ruling for a portfolio investment company

CRA has provided various rulings that s. 84(2) will not apply to "pipeline" transactions in which an estate holding shares of Opco, with an adjusted cost base which was stepped-up on death, sells those shares to a Newco for a Newco Note, with Newco then amalgamating with Opco one year later so that corporate assets can be used to pay down the Newco Note.  In 2011 STEPs Roundtable, Q. 5 2011-0401861C6, CRA stated that the circumstances which "could" lead to the application of s. 84(2) included the company having no business and instead holding mostly cash.

CRA has now issued a ruling for a company whose only activity is investing in marketable securities (whose basis is bumped under s. 88(1)(d)).  However, there is a fig leaf: "While Amalco may sell some of the Marketable Securities in order to enable it to make the above-mentioned repayments of the Newco Note, it intends to continue carrying on its investment business with the remaining Marketable Securities left."

Neal Armstrong.  Summaries of 2014 Ruling 2013-0503611R3 under s. 84(2) and s. 88(1)(c)(vi).