In a domestic triangular amalgamation, in which the shareholders of Targetco receive shares of Parentco, and Parentco receives shares of the Amalco resulting from the amalgamation of Targetco and Subco (a wholly-owned subsidiary of Parentco), ss. 87(9)(a.4) and (c) limit the cost of such Amalco shares to Parentco. However, a “Midco” could be inserted between Parentco and Subco. On the amalgamation, Parentco receives additional shares of Midco (having an FMV equaling the FMV of the shares of Parentco issued to the former shareholders of Targetco and to compensate it for such issuance (and Midco receives compensatory shares of Amalco).
CRA acknowledged that, as a purely technical matter, the “compensatory” shares issued by Midco to Parentco have full (FMV) basis. However, if an amalgamation is subject to the application of s. 87(9), and is structured in a manner to frustrate the application of ss. 87(9)(a.4) and (c), it will potentially be subject to the application of GAAR.
Accordingly, for transactions implemented after December 3, 2019 (or for amalgamations implemented before March 31, 2020 as part of a series of transactions or an arrangement that were substantially advanced, as evidenced in writing, before December 3, 2019) taxpayers should not rely on CRA's previous technical interpretations countenancing such transactions.