2018 Ruling 2018-0780201R3 - Post-mortem pipeline -- summary under Subsection 84(2)

Background

The Deceased held voting redeemable retractable Class A Special Shares of Opco (which the Deceased thereby controlled) and a Family Trust held Opco Common Shares. The assets of Opco (a CCPC) consist mostly of capital and depreciable properties (the “Specified Properties”). A resident of Canada, is the executor and beneficiary of the Estate of the Deceased.

Proposed transactions

1. Opco will transfer the Specified Properties on a s. 85 rollover basis to a newly-incorporated subsidiary (Subco) in consideration for Subco common shares.
2. The Estate will convert its Class A Special Shares into Opco Class B Special Shares (having similar attributes).
3. Opco will increase the stated capital of is remaining Class A Special Shares and elect on the full amount of the resulting s. 84(1) dividend under s. 83(2).
4. Opco will redeem all of the Opco Class A Special shares for their redemption amount and FMV in consideration for Opco’s issuance of the Opco Note to the Estate having a principal amount and FMV equal to the redemption amount and FMV of the redeemed shares, with Opco designating the resulting s. 84(3) dividend as an eligible dividend under s. 89(14), and carrying back its resulting capital loss under s. 164(6).
5. The Estate will transfer its Opco Class B Special Shares (electing under s. 85(1)) to a newly-incorporated corporation formed by it (“Newco”) in consideration mostly for a note (the “Newco Note”), and also Newco Class A Preference Shares which are issued by Newco as the balance of the consideration.
6. After 12 months (see para. 33) have elapsed from such transfer, Opco will amalgamate with Newco to form Amalco as described in s. 87(1). Amalco’s authorized share capital, as well as the PUC and ACB of each of its outstanding share classes, will be the same as Newco’s.
7. Amalco will begin repaying the Newco Note owing to the Estate, but “for greater certainty, the amount paid on the Newco Note to the Estate during the first year immediately following the amalgamation, will not exceed 10% of the principal amount of the Newco Note when it was first issued.”
8. Amalco will continue to carry on the Opco business.

Rulings

Standard ss. 84.1, 84(2) and 245(2) rulings.