Background
Holdco (a taxable Canadian corporation) holds all the shares of Opco, as its only asset other than cash. Holdco’s common shares are owned by X and its preferred shares by Parent (a non-resident corporation). While Opco was still carrying on a business, it entered into “SERP Agreements” with executive employees of Opco (the “Pensioners”) pursuant to which it undertook the “SERP Obligations,” i.e., to pay supplemental executive pension benefits to each Pensioner (including a surviving spouse) respecting services rendered by the Pensioner in Canada. The Opco business has been discontinued, and its assets consist predominantly of cash.
Parent assumption of SERP Obligations
Pursuant to the terms of a Consent, Assignment and Release Agreement that will be entered into with each Pensioner, each Pensioner will permit Opco to assign to Parent, and Parent to assume from Opco, the SERP Obligations, and Opco will assign to Parent, and Parent will assume, all of the SERP Obligations for no consideration. Neither Parent, nor any other entity in the Corporate Group, will be required to, or will, “ear-mark” or segregate any of its assets, or purchase a specific asset to secure or fund the SERP Obligations.
Wind-ups
Opco will transfer certain of its assets, if any, that have accrued gains to Holdco for cash consideration equal to the FMV of such assets so transferred.
Opco will be wound up so as to have s. 88(1) apply.
Holdco will be wound-up, so that:
a) Holdco will settle all of its liabilities.
b) Holdco will transfer sufficient cash deposits and other assets to Parent, to satisfy the liquidation entitlement of the preferred shares.
c) To the extent that there are any remaining assets of Holdco, they will be transferred to X to satisfy the liquidation entitlement of the Holdco common shares.
No portion of the cash deposits or near-cash investments that become assets of Parent as a result of the wind-up of Holdco, or as a result of the wind-up of Opco, will be required to be, or will be, “ear-marked” or segregated to secure the SERP Obligations that were assumed by Parent from Opco or by Holdco from Opco prior to the commencement of the winding-up of each of Opco and Holdco.
Opco and Holdco will be dissolved.
Rulings
No portion of the cash or near cash investments distributed by Opco to Holdco, or by Holdco to Parent, will be considered to be subject property of an RCA for the purposes s. 207.6(1), or a “contribution” made to an RCA, in respect of the SERP Obligations that will be assumed by Parent. In its summary, CRA stated:
The existing arrangement is an unfunded SERP of Opco that is not an RCA and none of the proposed transactions involving the transfer of the SERP liability to Parentco would create an RCA.