Background
The will of A provided for his shares of Holdco (which were not qualified small business corporation shares and for which no s. 110.6(2.1) deduction had been claimed) to be bequeathed equally to two testamentary trusts
Preliminary transactions
- The estate will exchange its Holdco shares under s. 51 for Class E non-voting discretionary-dividend redeemable retractable shares.
- Holdco will issue Class A common shares to the estate.
Proposed transactions
- Holdco will redeem Class E shares held by the estate, and elect under s. 83(2) respecting the resulting deemed dividend, and will carry back the resulting capital loss under s. 164(6) (without limitation by s. 40(3.6) by virtue of the exception in s. 40(3.61).)
- The estate will transfer to a newly-incorporated corporation (“Newco”) its Class E shares of Holdco in consideration for Class A voting participating shares of Newco, electing under s. 85(1) (no price-adjustment clause). The paid-up capital of the Newco Class A shares will be the lesser of: the greater of the PUC and ACB of the transferred Holdco Class E shares; and those Class E shares’ FMV.
- After at least a specified period has passed, Newco will reduce the PUC of its Class A shares through the distribution of 8 non-interest-bearing promissory notes with staggered dates before which they are not repayable (with the first one occurring the next day), and with the estate continuing to hold the Class A shares of Holdco and Newco.
- Following a specified period, Holdco and Newco will amalgamate.
- At an appropriate juncture (which apparently could occur before the amalgamation), the estate will distribute to its beneficiaries the above promissory notes which had not yet been repaid, as well as the common shares of Newco or Amalco.
Rulings
Re ss. 84(2), 84.1 and 245(2).