CRA rules on s. 55(3.01)(g) applying to the transfer (fresh after an estate freeze) by unrelated shareholders of Opco to a new Holdco, with an Opco realty spin-off to a new Realtyco sister

The three unrelated individuals (A, B and C) holding the shares of Opco were to engage in preliminary estate-freeze transactions as a result of which trusts for the families of A and B will hold non-voting Opco common shares and Opco preferred shares will be held through holding companies for A and B. (C will participate, but did not use a family trust.)

Thereafter, the Opco shareholders were to transfer their shares to a new Holdco, Holdco would transfer some of its (newly-acquired) Opco preferred shares to a newly-formed subsidiary (Realtyco) and Opco would transfer its real estate to its sister, Realtyco, for preferred shares (as, in the two preceding transactions, utilizing s. 85(1)), with the preference shares between Opco and Realtyco then being cross redeemed.

CRA ruled that these transactions will not be considered in themselves to result in a disposition or increase in interest described in any of ss. 55(3)(a)(i) to (v) and, in particular, that the share issuance by Holdco to the Opco shareholders will not be described in s. 55(3)(a)(ii) by virtue of s. 55(3.01)(g).

The ruling letter had a representation that the estate freeze transactions “will not be carried out with a view to completing the series of transactions that includes the Proposed Transactions and would be completed notwithstanding the implementation of the Proposed Transactions, and vice versa.” This is consistent with the proposition that transactions are not undertaken in contemplation of a subsequent series unless they are undertaken “in relation to” or “because of” that series” (see, e.g., Deans Knight at para. 55).

Neal Armstrong. Summaries of 2024 Ruling 2023-0989121R3 F under s. 55(3.01)(g) and s. 75(2).