Background
After the death of Father, his estate (whose equal beneficiaries are his surviving children, A, B and C) holds Class E and J preferred shares of Opco (which had recently sold all its marketable securities and holds only cash), whereas Opco’s voting participating Class A, B and C shares are held respectively by Holdcos A, B and C, which are respective Holdcos for A, B and C and their respective family trusts and (in the case of Holdco A) A's children.
Proposed transactions
- The estate will distribute its Class E and J shares equally to A, B and C.
- A, B and C will exchange their Class E shares under s. 51(1) for Class J shares.
- Opco will redeem all the Class J shares for $1.00 per share. No deemed dividend will arise since the PUC will also be $1.00 per share.
- Holdcos A, B and C will pass a special resolution for the winding-up of Opco. On the winding-up, Holdcos A, B and C will be deemed to have received dividends pursuant to ss. 88(2)(b) and 84(2) equaling the excess of the amount distributed on their Class A, B or C shares over those shares’ PUC, which dividends will be designated by Opco under s. 89(14) as eligible dividends.
- Any dividend refund generated by Opco will be distributed equally.
- Thereafter, Articles of Dissolution will be filed.
Additional information
Each s. 84(2) dividend described above will not significantly reduce the capital gain that, but for that taxable dividend, would have been realized on a disposition of a share of Opco at FMV immediately before such dividend.
Rulings
Regarding computation of deemed dividend under ss. 88(2)(b) and 84(2), and non-application of ss. 55(2) and 245(2).