Public company debt for debt-and-equity exchange is structured to reduce s. 80 hit

CRA has ruled on the restructuring under a plan of arrangement of debt of a public company (Aco) in financial difficulty.  In order that common shares issued to the debtholders will have a greater value (thereby reducing the s. 80 hit), those shares will be issued to them by a new corporation (New Aco) to which Aco, in turn, will issue notes and preferred shares.  The existing equity of Aco will then be redeemed for further New Aco shares, so that New Aco will be the "top" group company.

The steps are sequenced so that capital losses arising on a change-of-control write-down (under s. 111(4)(d)) can be applied to absorb the forgiven amount arising to Aco – and there also is a debt tuck-under and winding up transaction similar to 2012 Ruling 2011-0426051R3 summarized below.

Neal Armstrong.  Summary of 2012 Ruling 2012-0452821R3 under s. 80(1) – forgiven amount.