• The informal description given to a contemplated arrangement, permitted by the Canada Revenue Agency in certain circumstances, to facilitate the formal transfer of ownership of certain corporate property without immediate tax consequences. At the risk of over-simplification:
i. Such a transaction involves a formal reorganization of corporate assets, whereby the assets of one corporation are formally transferred to two or more other corporations owned by shareholders of the original corporation.
ii. If certain conditions are met, the immediate tax liability otherwise triggered by such transfers, and corresponding formal dispositions of property by the original corporation, essentially may be deferred; i.e., by the new recipient corporations taking the transferred property on a tax deferred basis.
iii. Again, certain conditions must be met to achieve such a permissible tax deferral. One of the most important of those conditions is a requirement that the assets of the original corporation be divided evenly between the new recipient corporations. For example, in a situation where property is held by original “Corporation A”, and that property is to be divided and transferred to three new recipient corporations, (“Corporation “B”, “Corporation C” and “Corporation D”), each of the three recipient corporations must receive an approximately equal one third share, (or 33.33 percent), of Corporation A’s property. I say “approximately” because the desired tax deferral is allowed even if the shares of divided and transferred property received by the new corporations are not precisely the same, but the percentages of assets taken by each new recipient corporation, when compared to each other, are within a permissible one percent variation of the total assets being transferred. So, continuing with my example, if the assets of original Corporation A are divided and transferred to Corporation B, Corporation C, and Corporation D, the tax deferral will be permitted if each of the three new transferee corporations receives between 32.33 and 34.33 percent of the total original assets of Corporation A.