The shares of Holdco - which holds real estate that it leases to Opco (carrying on a Canadian active business) – are held by three unrelated individuals: Mr. X (an investor); Ms. Y (an executive of Opco); and Mr. Z.
CRA ruled that s. 84.1 would not apply to transactions in which Ms. Y forms a Buyco (Newco), and uses money borrowed from Holdco (which, in turn, takes out a secured loan from its bank) to acquire Mr. X’s shares, with Newco then repaying the loan over time. CRA’s summary states, “Mr. X and [Newco] are dealing with each other at arm’s length” – and the body of the ruling letter noted that representations were submitted to this effect.