Background
Holdco is a portfolio company that holds cash, public company shares, shares of Opco (which are not liquid) and an interest in a general partnership (SENC). On the death of A, A held Class A common shares of Holdco and Class E preferred shares (with no such shares qualifying as qualified small business corporation shares (QSBCS),) and also held shares of Opco which qualified as QSBCS.
Preliminary transactions were engaged in whereunder Opco redeemed various shares held by Holdco and another company (Holdco 2) acquired the interest in SENC, as a result of which the estate and Holdco no longer held any shares of Opco or an interest in SENC.
Proposed transactions
- Holdco will redeem Class E shares held by the estate.
- Holdco will declare and pay a dividend on its Class A shares and satisfy the dividend with the issuance of Note 1, and elect for such dividend to be a capital dividend.
- The estate will transfer all of its Class A shares to a newly formed corporation (Newco) in consideration for Note 2 and one Class A share of Newco, electing under s. 85(1).
- Holdco will continue to carry on its portfolio business for one year, after which Newco and Holdco will amalgamate.
- Given the age of the two child beneficiaries, Note 2 may not be repaid for some time but, in any event, will be repaid no faster than on a specified basis over the first post-amalgamation year.
Rulings
Re ss. 84.1, 84(2) and 245(2).