A parent wishes to access the s. 84.1(2.31) or (2.32) rules regarding a transfer of Parent Inc. (whose shares constituted qualified small business corporation shares) to the parent’s adult children, who have been actively engaged in the business of Parent Inc. As a result of an estate freeze, the parent now held voting preferred shares (the “Control Shares”) according voting control, as well as retractable preferred shares (the “Freeze Shares”) of Parent Inc.; and Parent’s adult children hold voting common shares. Parent now wishes to sell the Freeze Shares to a holding company controlled and owned by the children.
CRA indicated that there is no requirement in the intergenerational transfer rules that shares sold by a parent to a corporation controlled by one or more "children" be common shares or voting shares, so that preferred shares (such as the Freeze Shares) would not per se be excluded from the s. 84.1(2)(e) exception (the “Exception”).
However, retaining the Control Shares would prevent the parent from benefiting from the Exception both because (i) they would entail the parent still controlling the subject corporation subsequent to the disposition of the Freeze shares, contrary to ss. 84.1(2.31)(c)(i) and 84(2.32)(c)(i) and (ii) they would not qualify as non-voting preferred shares as defined in ss. 84.1(2.31)(d)(i) and 84(2.32)(d)(i).