2022 Ruling 2021-0911791R3 F - Single-wing butterfly - Investment company -- summary under Distribution

Background

The distributing corporation (“DC”) is a vehicle for two sisters (A and B) and trusts for the benefit of B's adult children to invest in portfolio investments. A has the voting control of DC through the direct holding of Class A voting shares, A’s personal holding company (Holdco A) holds Class D non-voting common shares and class Y preferred shares of DC, and the transferee corporation (TC) holds Class B non-voting common shares and Class X preferred shares of DC.

The shareholders of TC are B’s personal holding company (Holdco B), an inter vivos trust for B and her descendants and two holding companies held by A and by two inter vivos trusts for the benefit of B’s children.

Completed transaction

TC incorporated Newco.

Proposed transactions

1. DC effected increases in the stated capital of the Class D and Class B shares in order to accomplish a proportionate distributions of its capital dividend account (taking into account the required s. 83(2) elections) and made further increases to the stated capital of those shares (by an amount not exceeding the safe income attributable to those shares) in order to proportionately distribute the ERDTOH and NERDTOH of DC to Holdco A and to TC (with eligible dividend elections being made under s. 89(14).)
2. DC will distribute, on a net fair market value basis, a proportionate part of its assets (which do not include business property) to Newco on a s. 85 rollover basis in consideration for the assumption of liabilities and the issuance of Newco preferred shares.
3. Newco will redeem the shares so issued by it to DC in consideration for the issuance of a demand non-interest bearing note.
4. Newco will be wound up into TC so that the note of Newco will be assumed by TC. Newco will subsequently be dissolved.
5. DC will purchase for cancellation the Class B and Class X shares held in it by TC in consideration for its issuance of a demand non-interest bearing note.
6. The notes issued above will be set off.
7. A will transfer her voting Class A shares of DC to Holdco A for cash consideration and the two corporations will be vertically amalgamated.

Rulings

Including re s. 55(3)(b).