CRA rules on a post-mortem pipeline where the estate is paid off over 3 years commencing 1 year after its transfer of the subject portfolio company to Newco

CRA ruled on a post-mortem portfolio under which:

• some of the preferred shares of the subject portfolio company (Holdco) were redeemed in its hand in order to generate the recovery of Holdco’s ERDTOH and NERDTOH and a capital loss to be carried back to the deceased’s terminal year pursuant to s. 164(6)
• the estate transferred, to a “Newco” formed by it, preferred shares of Holdco in consideration for a demand note ("Note 2") of Newco and a Newco common share (apparently, its only issued and outstanding share), electing under s. 85(1).
• after a period of at least one year following such transfer, Newco may progressively repay the note at the rate of 1/3 of its principal per year, with such repayments funded through Holdco redeeming preferred shares.
• after the expiry of a specified period of years, Newco will be wound up.

Neal Armstrong. Summary of 2021 Ruling 2021-0877011R3 under s. 84(2).