2018-0748381C6 STEP 2018 – Q10 - Pipeline Ruling Requests

Principal Issues: Given that proposed section 246.1 has been abandoned will the CRA still consider issuing favourable income tax rulings on post-mortem pipeline transactions?

Position: Yes.

Reasons: In accordance with the provisions of the Act and our previous positions.

Author: Cooke, Michael
Section: 84(2); 84.1

2018 STEP CRA Roundtable – May 29, 2018

QUESTION 10. Pipeline Ruling Requests

In light of the proposed and subsequent abandonment of proposed section 246.1, how will these developments impact the ability of a taxpayer to request an advance tax ruling on inter vivos or post-mortem pipeline plans?

CRA Response

Our Directorate continues to consider issuing favourable rulings on the potential application of section 84.1 and subsection 84(2) to post-mortem pipeline strategies on a case-by-case basis, after a review of all the facts and circumstances surrounding each specific situation. However, the CRA’s general views on these types of post-mortem strategies as set out in our response to Question 22 at the 2011 Annual Canadian Tax Foundation Conference are still applicable.

Briefly, in our response to Question 22 we noted, inter alia, that in the context of certain post-mortem pipeline strategies, some of the additional facts and circumstances that in our view could lead to the application of subsection 84(2) and warrant dividend treatment could include the following elements:

“The funds or property of the original corporation would be distributed to the estate in a short time frame following the death of the testator.

The nature of the underlying assets of the original corporation would be cash and the original corporation would have no activities or business (“cash corporation”).

Where such circumstances exist, resulting in the application of subsection 84(2) and dividend treatment on the distribution to the estate, we believe that double taxation at the shareholder level could still be mitigated with the implementation of the subsection 164(6) capital loss carryback strategy, provided the conditions of the provision would apply in the particular facts and circumstance.”

Accordingly, in cases where we have issued favourable rulings, the particular taxpayer’s facts and proposed transactions, amongst other things, did not involve a cash corporation and contemplated a continuation of the particular business for a period of at least one year following which, a progressive distribution of the corporation’s assets would occur over a period of time. Consequently, one or more of the conditions in subsection 84(2) were not met.

Michael Cooke
2018-074838

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