Background
On the death of X, Class G non-voting preferred shares of Holdco passed on a rollover basis to X’s surviving spouse and on a non-rollover basis to X’s estate for ultimate distribution to two surviving children. No capital gains deduction had been claimed by X respecting such shares. Holdco held and managed investments. Holdco held all the shares of Opco other than Class B participating non-voting shares held by the Family Trust. Opco redeemed preferred shares held by Holdco, electing under s. 83(2) and, following the conversion under s. 51 of the Class G shares of the surviving spouse into Class H shares, such shares were redeemed.
Proposed transactions
The estate will transfer its voting Class C and non-voting G preferred shares of Holdco on a s. 85(1) rollover basis to a newly-incorporated corporation (with no shareholders yet) in consideration for Class A and C shares of Newco.
Holdco will pay a capital dividend on the Class B shares held by the Family Trust.
After a period of at least one year, Newco will effect a reduction in the paid-up capital of its Class A shares through the issuance of 8 promissory notes payable to the Estate. They will each be payable in the 1st, 2nd, 3rd (etc. through to the 8th) quarter thereafter. Such notes will ulimately r be paid in accordance with their terms.
After the passing of at least XX months, Holdco and Newco will amalgamate.
The proceeds of the promissory notes will gradually be distributed by the Estate to its beneficiaries.
Rulings
Re ss. 84(2), 84.1 and 245(2).