Background
The Corporation, which is held by Holdco, three siblings (Child 1, 2 and 3) and three trusts (Newtrust 1, 2 and 3) for the benefit of their respective families, has been holding cash, marketable securities and real estate investments. Holdco, also a CCPC, is held by Child 1, 2 and 3 and trusts (Trust 1, 2 and 3) for their respective spouses and children. The Corporation has ERDTOH, and GRIP balances, and a negative CDA.
Proposed transactions
Holdco and the Corporation will amalgamate.
- The following transactions will be effected to effect a split-up of Amalco between three transferee corporations (TC 1, 2 and 3), which have been incorporated by Child 1, 2 and 3, respectively. The description below focuses on TC 1, but comparable transactions are effected for TC 2 and 3 and the comparable family trusts.
- Child 1, Newtrust 1 and Trust 1 will transfer a portion of their common shares of Amalco to TC 1 under s. 85(1) in consideration for common shares of TC 1.
- Amalco will transfer a pro rata portion (determined on a net rather than gross FMV basis) of each of its two types of property (cash and near cash, and investment assets) on an s. 85(1) basis to TC 1 in consideration for assumption of liabilities and non-voting retractable preferred shares of TC 1.
- Such preferred shares will then be redeemed in consideration for a TC 1 note.
- TC 1 will then end its first taxation year.
As noted, comparable transactions will contemporaneously carried out for the Child 2 and 3 “wings” of this split-up butterfly.
- On the following day, the winding-up of Amalco will be authorized.
- The only assets of Amalco, being the notes owing by TC 1, 2 and 3 will be distributed on the winding-up (to which s. 88(2)(b) will apply), thereby generating deemed dividends under s. 84(2) (which will be designated as eligible dividends) and a dividend refund to Amalco (generating a corresponding s. 186(1)(b) liability to TC 1, 2 and 3). Such distribution of the notes to their respective debtors will result in their extinguishment.
- On the end of that day, Amalco will end is first taxation year.
- Amalco will not be dissolved until it has received and distributed, on a pro rata basis, the dividend refund.
Rulings
Standard (including re no application of s. 80).