Pipeline gotcha

Clause 256(7)(a)(i)(D) provides that control of a corporation is not acquired only because

a particular person who acquired the shares from an estate that arose on and as a consequence of the death of an individual, if the estate acquired the shares from the individual as a consequence of the death and the individual was related to the particular person immediately before the death [emphasis added]

In a typical pipeline, the estate transfers the shares of Holdco held by the deceased at death to Newco in exchange for shares of Newco. The estate will then distribute Newco shares, or shares of the amalgamated corporation formed on the amalgamation of Newco and Holdco as part of the pipeline, to the beneficiaries. Clause 256(7)(a)(i)(D) appears not apply to the Newco/Amalco shares because the estate did not acquire them from the deceased as a consequence of his or her death.

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