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23 August 2020- 11:44pm CRA confirms that it generally will not attach value to private company voting rights Email this Content CRA confirmed a previous position that “provided that the owners of all the shares of the corporation act in a manner consistent with the assumption that no value attaches to the voting rights, and the rights are eventually extinguished for no consideration, the CRA will generally not attribute value to the rights,” so that, for example, “in the context of an estate freeze of a Canadian-controlled private corporation, where the freezor, as part of an estate freeze, keeps controlling non-participating preference shares in order to protect his economic interest in the corporation, the CRA generally accepts not to take into account any premium that could be attributable to such shares for the purposes of subsection 70(5).” ...

8 November 2021- 10:43pm CRA indicates that a pipeline transaction can use an existing corporation rather than a Newco Email this Content In order to implement pipeline planning, the estate of an individual generally incorporates a new corporation ("Newco") to which it sells shares of a private corporation ("Target"), with or without a tax rollover, in consideration for shares of Newco or a note issued by Newco. ...

CRA went on to find that the dividends received by him “as the only form of consideration for the work he performs for the Company” were exempted, i.e., CRA did not recharacterize the dividends as compensation for his services. ...

30 August 2022- 11:06pm CRA rules on pipeline transactions of an alter ego trust implemented over an extended period Email this Content CRA provided the usual pipeline rulings respecting transactions, which contemplated that: shares of an investments company (ACo), whose ACB had been stepped up in the hands of an alter ego trust on the death of the settlor (“Father”) are transferred by the trust to a “Newco” in consideration mostly for notes of Newco the Newco common and preferred shares and the Newco notes are distributed pro rata to Father’s children on a s. 107(2) rollover basis at least one year after step 1, Newco and ACo amalgamate (under a long-form amalgamation, given that the children until then had been minority shareholders of ACo) Amalco repays no more than 10% of the initial aggregate principal amount of the notes during the first year following the amalgamation and, absent extraordinary events, repays no more than that sum in each of the subsequent years. ...

CRA indicated that, under ETA s. 182, Aco is deemed to have collected the GST/HST as part of the liquidated damages amount, which is deemed to be consideration for a taxable supply by it, and Bco would be deemed to have paid that GST/HST (notwithstanding that Cco is the actual payer) – so that Bco (not, Cco) would be able to claim an ITC for the deemed GST/HST payment if the usual conditions in s. 169 were satisfied. ...

2 January 2023- 11:18pm 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 Email this Content 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. ...

In consideration for this discontinuance, it agreed to make contributions to a trust to fund certain designated employee benefits as described in s. 144.1(1) for the New Hires. ...

It also reiterated its position that generally damages payments not within s. 182 are not consideration for taxable supplies. ...

10 March 2024- 10:57pm CRA will not change its GAAR positions in IC 88-2 and the Supplement as a result of the GAAR amendments Email this Content Regarding the impact of Bill C-59 on the GAAR positions in IC 88-2 and IC 88-2 Supplement 1, CRA stated: [T]he application of the amended section 245 must be in accordance with the object, spirit and purpose of such provision and of the other provisions that are relied upon by the taxpayer as well as, ensure that economic substance receives proper consideration. ...

CRA found that such charges were consideration for a taxable supply of wastewater treatment services made by the municipality, and that such supply was not an exempted supply of municipal services under ETA s. ...