The proposed transactions in 2022-0957491R3 F entailed initial distributions by an estate and trust, followed by the implementation of a split-up butterfly reorganization which entailed the winding up of the distributing corporation (Transferor). The Rulings Directorate granted an extension for the implementation of the proposed transactions given that clearance certificates had not yet been received from CRA and the ARQ respecting such distributions.
The transactions as originally proposed contemplated that after the redemption of preferred shares issued by the two transferee corporations (Child 1 Holdco and Child 2 Holdco), and before the winding-up of the Transferor into those Holdcos, those Holdcos would establish their first taxation year ends, thereby avoiding circularity issues under s. 186(1)(b). Due to the implementation delay, this was no longer possible, i.e., their first taxation years would be required to occur before their redemption of their shares.
The Directorate noted this issue, but declined to provide any guidance on it.