Background
After he was placed in a long-term care facility, an individual (the “Deceased”) who had owned and been managing the investing business of Aco and Bco, transferred property including the shares of Aco and Bco, on a s. 73(1) rollover basis to a newly-formed alter ego trust (“AE Trust”) of which a child (“Child 1”) was the trustee, and Child 1, Child 1’s spouse and their three adult children (the “Grandchildren”) were beneficiaries with entitlements to income and capital as determined in the discretion of the trustee (except that he could not distribute capital to himself). On the death of the Deceased, there was a deemed disposition of inter alia the shares of Aco and Bco for their FMV pursuant to s. 104(4)(a).
Proposed transactions
- The Trustee pursuant to a provision of the AE Trust Deed will execute an irrevocable deed to amend the AE Trust Deed to thereupon remove Grandchild 1 (who is a non-resident) as a beneficiary of AE Trust. (The stated purpose “is to preclude the potential application of the provisions of section 212.1 that may otherwise result, to the extent that Grandchild 1 would be a non-resident beneficiary of AE Trust at any relevant time.”)
- AE Trust will transfer its common shares of Aco and Bco on a s. 85(1) rollover basis to a corporation newly-incorporated by it (Newco) in consideration for two notes of Newco and preferred shares whose redemption value is nominal subject to the operation of a price adjustment clause.
- After the passage of a specified minimum period of time, Newco will amalgamate with Aco and Bco, and make a bump designation pursuant to ss. 87(11), 88(1)(c) and (d) respecting various capital properties that had been held by Aco and Bco before the death of the Deceased.
- The notes then will gradually be repaid over no less than a specified number of quarters, which might entail the sale of securities or their distribution in specie to AE Trust qua noteholder.
Rulings
Including re ss. 84(2), 84.1 and application of s. 88(1)(d.3).