CRA rules on pipeline using a joint Newco of children and estate – and notes that the replacement of an executor resulted in an acquisition of control of subsidiaries

CRA provided favourable rulings on a post-mortem pipeline transaction, but with the transactions complicated somewhat by the deceased and his surviving spouse having owned shares both of a portfolio company (Investco) and of a real estate subsidiary (Holdco) of Investco – but with the deceased’s shares of Holdco not having an accrued gain on his death. After preliminary transactions to convert Holdco to a wholly-owned subsidiary of Investco on a taxable basis and to pay capital and taxable dividends from Investco to the estate, the deceased’s children (who also held shares of Investco) transferred those shares on a rollover basis to a Newco formed by the estate, the estate transferred its Investco shares to Newco in consideration for a note and shares - and, after the requisite time, Newco and Investco were to be amalgamated and the note gradually repaid.

The preliminary statement of facts indicated that the resignation and replacement of the executor of the estate resulted in a deemed taxation year end for Investco and Holdco.

Neal Armstrong Summaries of 2021 Ruling 2020-0874931R3 F under s. 84(2) and s. 251.2(2)(a).