Background
On the death of X, he and his two resident brothers (Leg1 and Leg2 – who were the legatees under his will of his shares of Holdco) were the holders of all the shares of Holdco consisting, in each case, of Class A voting common shares and Class C voting redeemable preferred shares. Holdco was a portfolio company whose sole activities were the holding, management and transfer of various investments.
Preliminary transaction
The resident estate distributed all its (Class A and C) Holdco shares equally to Leg1 and Leg2 (thereby resulting in basis averaging under s.47(1).)
Proposed transactions
- Leg1 and Leg2 will incorporate Newco and subscribe equally for Class A shares of Newco.
- Each of Leg1 and Leg2 will transfer all of their shares of Holdco to Newco in consideration for a note (Note 1 or Note 2) equalling the aggregate ACB of the transferred shares and for Class E non-voting non-cumulative redeemable retractable Class C shares of Newco, electing under s. 85(1).
- After a specified number of months have passed, with Holdco continuing to carry on its portfolio business pursuant to the same investment policy as before, Holdco and Newco will amalgamate.
- Notes 1 and 2 will thereafter commence to be repaid by Amalco in accordance with a specified schedule.
Rulings
Re ss. 84.1, 84(2) and 245(2)