CRA rules on a s. 55(3)(a) spin-off to purify a farming business

CRA ruled on a s. 55(3)(a) spin-off transaction undertaken so that the shares of the transferee corporation (Newco) would qualify as shares of the capital stock of a family farm or fishing corporation - whereas the transferor corporation (Opco 1) held both passive investments in non-active business subsidiaries and assets used directly or indirectly (through related corporations) in an active farming business. Accordingly, the spin-off involved transferring the latter category of assets to Newco which would be controlled by father through special voting shares (his only Newco shares) but with the common shares held by two of his children and a family trust.

A preliminary step in the transaction included the distribution of shares of Opco 1 by a family trust to a Holdco. CRA stated that this distribution could result in the s. 104(4) deemed disposition date being determined with regard to s. 245(2), and that an RC312, Reportable Transaction and Notifiable Transaction Information Return was required to be filed in respect of this distribution.

Neal Armstrong. Summary of 2024 Ruling 2023-0985741R3 F under s. 55(3)(a).