Background
A special-needs minor child (CC4) of Mr. C and Ms. CC was the sole beneficiary of an inter vivos trust for the exclusive benefit of CC4 (“TebC4”), which held non-voting Class A common shares of a holding company (Fco) for the family of Mr. C. Its only other asset was the silver bar with which it was settled by a Mr. X. The other children (CC1 to CC3) of Mr. C and Ms. CC directly held the remaining Class A shares of Fco, and Mr. C and some other family trusts held the other shares of Fco. Fco held a portion of the shares of F2co (another holding company for the family of Mr. C) with the balance of the shares of F2co held by Mr. C and some other family trusts.
Proposed transactions
- TebC4 will exchange its Class A shares of Fco for newly-created non-voting, non-cumulative redeemable and retractable Class Z shares of the capital stock of Fco.
- F2co will increase the paid-up capital (PUC) of its Class D shares held by Fco, in an amount not exceeding the safe income on hand attributable to those shares, and make the designation provided under s. 89(14) so that the resulting taxable dividend received by Fco will be added to its GRIP.
- Fco will increase the PUC of its Class Z shares held by TebC4 (so that such PUC increases to the shares’ redemption amount), and make the designation provided under s. 89(14). TebC4 will include the resulting taxable dividend in its income, without taking a s. 104(6) deduction.
- F2co will redeem Class E shares held by Fco for those shares’ PUC and ACB in consideration for the issuance of a non-interest bearing demand note in a principal amount equal to the estimated tax liability of TebC4 from the taxable dividend in 3 above.
- Fco will assign that note to TebC4 as a distribution of PUC on its Class Z shares.
- Mr. CC will settle a new trust for the exclusive benefit of CC4 (“NTebC4”) with a silver bar, and TebC4 will transfer its Class Z shares of Fco to NTebC4 for no consideration. NTebC4 will not elect to avoid the application of para. (f) of the definition of "disposition" in s. 248(1).
- TebC4 will be wound up after paying its taxes on the dividend received in 3 with the proceeds of the note issued in 4.
Rulings
Including re application of s. 86(1) to creation of Class Z shares in 1, non-application of s. 55(2) to s. 84(3) dividend in 2, application of s. 53(1)(b) to s. 84(1) dividend received by TebC4 in 3, application of para. (f) exclusion from "disposition" re 6 and non-application of s. 104(4) to NTebC4 because of the exclusion in para. (g) of the s. 108(1) definition of "trust."