Background
At the time of X’s death, he held the Class A and B shares of Investco, which had a portfolio investment business (holding, e.g., GICs). No capital gains deduction was available for claiming in his terminal return.
Proposed transactions
- A portion of the Class B shares of the estate will be exchanged under s. 51 for Class C shares of Investco.
- The PUC of the Class C shares will be increased, resulting in an s. 84(1) dividend to the estate and an increase in the ACB of its Class C shares pursuant to s. 53(1)(b).
- Investco will redeem the Class C shares in consideration for a note, and designate a portion of the resulting deemed dividend to be an eligible dividend.
- The estate will elect pursuant to s. 164(6) to carry back the resulting capital loss to X’s terminal year. Pursuant to s. 40(3.61), s. 40(3.6) will not apply.
- Following the incorporation by the executors of Newco, the estate will transfer its Class A and B shares to Newco under s. 85(1) in consideration for a non-interest-bearing note and for Class A shares of Newco.
- At least one year after the transfer in 5, Newco will amalgamate with Investco to form Amalco, which will continue to carry on the investment business.
- The note issued in 5 above will be repaid no more rapidly than [25%] per quarter.
Rulings
Re ss. 84.1. 84(2) and 245(2).