Background
Trust 1 is a discretionary inter vivos family trust, settled almost 21 years ago, whose principal (resident) beneficiaries are Child 1 and 2 (the sons of A) and which holds inter alia Class F-1 non-voting preferred shares of Holdco 2 (the “Subject Shares”).
Non-voting common shares of Holdco 2 (which holds portfolio investments and debt and shares of private companies) are held by Trusts 2 to 4, special voting shares are held by Child 1 and 2 and Holdco 1, and non-voting preferred shares by Child 1 and Holdco 1, as well as Trust 1’s Subject Shares.
The shares of Holdco 1 (which holds portfolio investments and debt or shares of private companies including subsidiaries) are held by Trust 2 (holding non-voting common shares) and by A.
Proposed transactions
- Trust 1 will distribute pursuant to s. 107(2) a portion of its Class F-1 preferred shares to Child 1 and 2 who, in turn, will transfer those shares on a s. 85(1) rollover basis to Newco 1 or 2, respectively, which will be wholly-owned by them except for special voting shares thereof held by A (representing all the voting rights).
- Following the realization by Trust 1 of gain pursuant to s. 104(4)(b)(ii) on the subject shares, it will dispose of the Subject Shares to Holdco 1 in consideration for Notes 1, 2 and 3 of Holdco 1.
- Notes 2 and 3 will be distributed by Trust 1 (apparently, immediately) pursuant to s. 107(2) to Child 1 and 2, respectively; and repayment of Note 1 will fund the capital gains tax of Trust 1 from 2.
- Trust 1 will be wound-up pursuant to s. 107(2), and its remaining property distributed to Child 1 and 2.
- After [one?] year, Holdco will commence to repay Notes 1 and 2, in tranches not exceeding specified maximums.
Rulings
Re ss. 84.1, 84(2) and 245(2).