The estate of an individual who, on death, wholly-owned Aco, included a charity entitled to 11% of the Estate. The Estate will implement a standard post-mortem pipeline, entailing the Estate’s transfer of the Aco shares to Newco (formed by it), followed by the winding-up (or amalgamation) of Aco.
Under s. 88(1)(c)(vi), a bump will be denied if property distributed to the parent (Newco) on the winding-up, or “substituted property”, is acquired by a “specified shareholder” (other than a “specified person”) of the subsidiary (Aco) “at any time during the course of the series and before control of the subsidiary was last acquired by the parent.”
However, s. 88(1)(d.3) will deem control of Aco to have been acquired by the Estate immediately after the death from a person with whom the individual dealt at arm’s length; and pursuant to s. 88(1)(d.2), control of Aco by Newco will be deemed to have been acquired at the time of such deemed acquisition by the Estate. Will CRA consider the charity to be a specified shareholder of Aco before control of the subsidiary was last acquired by Newco so as to deny the bump?
CRA indicated that it would apply ss. 88(1)(d.2) and (d.3) on the basis that the deemed acquisition of control of Aco by the Estate occurs concurrently with the acquisition of shares of Aco by the Estate and, accordingly, it would not consider the charity to be a specified shareholder of the subsidiary (Aco) prior to the deemed acquisition of control of the subsidiary by the Estate.