Phantom s. 74.4(2) income from the original freeze can continue following a refreeze

Taxpayers may treat the pandemic as an opportunity to engage in a “refreeze” transaction, i.e., resetting the redemption amount of freeze preferred shares to accord with the corporation’s current reduced value. In addition to the more obvious valuation issue, a more technical point to be mindful of is that if the initial freeze transaction was subject to the attribution rule in s. 74.4(2), the resulting deemed interest benefit will not be reduced on the refreeze transaction.

Further, if the refrozen preferred shares are redeemed, the "outstanding amount" will apparently be reduced only to the extent of the value of the refrozen shares. Thus, the freezor may technically be deemed to continue receiving "phantom" interest income, even after all outstanding preferred shares are redeemed.

Neal Armstrong. Summary of Alexander Demner and Nicholas McIsaac, “Freezes and Refreezes: Opportunities and Risks in the Era of Self-Isolation,” COVID-19 and Canadian Tax for the Owner-Manager/Canadian Tax Focus (Canadian Tax Foundation), July 2020, p. 5 under s. 74.4(3).

See also Manu Kakkar, Alex Ghani, Boris Volfovsky, "Corporate Attribution: Refreeze May Cause Unsolvable Corporate Attribution Problem", Tax for the Owner-Manager, Vol. 18, No. 3, July 2018, p.6.