2020 Ruling 2020-0854401R3 - Internal Reorganization 55(3)(a) -- summary under Paragraph 55(3)(a)

Background

Three resident siblings hold the shares of DC directly (in the case of Siblings 1 and 2) and, in the case of all three, through their respective wholly-owned corporations (Parentco1, 2 and 3). DC wholly-owns Opcos 1, 2 and 3 as well as Landco1 and 2, and hold 50% of the shares of Landco3 (with the other half held by arm’s length third parties).

Completed transactions

These included life insurance policies held by DC on the lives of the respective siblings being transferred to the respective Parentcos through dividends-in-kind of such policies, utilizing in part Holdco’s capital dividend account, and declaring and designating the balance as eligible dividends.

Proposed transactions

1. The Siblings will incorporate Holdco which, in turn, will incorporate TC.
2. Parentco1, 2 and 3 will transfer all of its shares of DC to Holdco on a s. 85(1) rollover basis in consideration for corresponding shares of Holdco – and similarly for Parentco2 and 3.
3. Sibling1 and 2, and the Estate for the Siblings’ father, will each transfer all their shares of DC to Holdco on a s. 85(1) rollover basis in consideration for corresponding shares of Holdco.
4. Holdco will exchange all of its DC common and special shares pursuant to a s. 86 reorganization for newly issued common shares and Class B Special redeemable shares pursuant to a s. 86(1) reorganization, with the PUC of the exchanged shares allocated between the two classes of new shares based on their proportionate FMV.
5. Holdco will transfer all of its DC Class B Special shares to TC on a s. 85(1) rollover basis in consideration for common shares of TC.
6. DC will transfer to TC all of its common shares of Landco1, Landco2 and Landco3 on a s. 85(1) rollover basis in consideration for Class A Special shares of TC.
7. DC (and TC) will redeem all of its Class B (and Class A) Special shares held by TC (and DC), and the redemption price in each case will be satisfied by a demand non-interest-bearing promissory note.
8. The two notes will be set-off.

Additional Information

TC does not intend to sell or otherwise transfer any of the assets it will receive in the course of the Proposed Transactions.

Rulings

Include that the Proposed Transactions will not by themselves be considered to result in a disposition or increase in interest described in subparagraphs 55(3)(a)(i) to (v).