CRA confirms that valid price adjustment clauses also have retroactive effect for s. 75(2) purposes

CRA confirmed that a valid price adjustment clause for an estate freeze transaction generally will be considered to have retroactive effect for purposes of s. 75(2) (i.e., so that the freezor is not considered to have indirectly transferred property to the family trust as a result of the trust acquiring common shares at an undervalue) as well as for other income tax purposes provided that the clause is implemented.

CRA implicitly assumed that an adjustment to the freeze preferred shares would entail the corporation making or receiving an adjusting payment on those shares' redemption.  This, in fact, is unlikely to be the case, as it generally would be preferable for the price adjustment clause to apply directly to the redemption amount of those shares - rather than keeping the redemption amount fixed and making adjustment payments.

Neal Armstrong.  Summary of  5 October 2012 APFF Round Table, Q. 1 2012-0453891C6 F under General Concepts - Effective Date.