Finance proposes relief for GREs, with non-resident beneficiaries, engaging in pipelines

A pipeline typically entails the estate selling its shares of Canco (whose ACB was stepped up on death) to a newco (NewCanco) for a note of NewCanco which on its subsequent repayment effectively extracts the corporate surplus of Canco. After agreeing that under the new look-through rule in s. 212.1(6)(b), the non-resident beneficiaries of the estate generally will be subject to a deemed dividend based on their proportionate share of the excess of the note over the paid-up capital of the transferred Canco shares, Finance stated:

[W]e are prepared to recommend to the Minister of Finance that the Act be amended to exclude, from the application of paragraph 212.1(6)(b), dispositions of shares by a Canadian resident graduated rate estate of an individual who was resident in Canada immediately before the individual's death, provided that those shares were acquired by the estate on and as a consequence of the individual's death. We also intend to recommend that this proposed amendment apply to dispositions after February 26, 2018.

No relief for non-GRE trusts.

We will provide detailed summaries of the CRA responses at today's CTF Roundtable in the next day or so.

Neal Armstrong. Summary of Finance Comfort letter entitled “Cross-Border Surplus Stripping & Graduated Rate Estates” dated 2 December 2019 under paragraph 212.1(6)(b) .