CRA rules on pipeline transactions for which the deceased had claimed a capital gains deduction

X died holding all the shares of Holdco (an investment management company). X and a non-arm’s length individual had claimed the s. 110.6(2.1) deduction on predecessor shares.

A proposed post-mortem pipeline entailed the estate redeeming some of its shares so as to use Holdco’s GRIP and to generate a s. 164(6) loss carryback, then transferring its shares to a Newco created by it in consideration for notes whose principal would be subject to the s. 84.1(2)(a.1) limitation having regard to the previous s. 110.6(2.1) claims, and shares as to the balance of the consideration received on a s. 85(1) rollover basis. After the usual redacted delay, Newco and Holdco would be amalgamated and then the notes would be repaid at a redacted quarterly pace.

Amalco would bump investments under s. 88(1)(d) in anticipation of their eventual sale, but not to a specified shareholder, or other person described in s. 88(1)(c)(vi)(B)(I), (II) or (III), as part of the series.

At the appropriate time, the estate would distribute the Amalco shares and the Notes (or the funds derived from their repayment) equally among the heirs – presumably on a s. 107(2) rollout basis in the case of the Amalco shares.

Neal Armstrong. Summary of 2021 Ruling 2021-0907591R3 F under s. 84(2).