Regarding the status of post-mortem pipeline transactions following the amended GAAR rule, the Directorate stated:
The Directorate does not consider the use of a pipeline transaction as a means to preserve the capital gain arising on the death of a shareholder while limiting double taxation on the subsequent distribution of Opco’s assets to be a … [GAAR] abuse … . Accordingly, the Directorate will continue to issue favourable Rulings on the non-application of the amended GAAR in the context of post-mortem pipeline transactions that meet our existing administrative guidelines described in document 2018-0748381C6.
However, the Directorate noted the example provided in the Explanatory Notes of a surplus-stripping transaction of Jane in which she realized a capital gain on a dirty s. 85 exchange of her Opco shares, transferred her stepped-up Opco shares to another corporation controlled by her (Buyco) in consideration for a Buyco note, with Opco then dividending its earnings to Buyco for application in repaying the note. It indicated that it will not provide Rulings in respect of transactions of this type or “in similar circumstances where an individual shareholder proposes to engage in non-arm’s length transactions, one of the main purposes of which is to create cost basis to extract retained earnings.”