Chapter 11 (Corporate Reorganizations) Flashcards
What are the 4 different sections that can be used for corporate reorganizations?
- Section 85 Rollover
- Section 86
- Section 85.1 (takeover)
- Section 52 (simple)
For a s.86 share exchange, what criteria need to be met?
- Amend articles of incorporation
- All shares of a particular class
- Equity must behave like debt
What is the FMV/ACB/PUC of new shares issued from a s.86 estate freeze?
Same as the old shares, minus any non-share consideration received.
What is the maximum BOOT you can take out using s.86 estate freeze?
PUC/ACB
What tax consequences are faced if the value of the PS in a new corporation exceed the value of the old CS (i.e. Put In > Take Out)?
Deemed dividends and/or conferral of benefits
What is the main difference between a s.85 and s.86 estate freeze?
s.85 you use elected amount for the PUC/ACB of the new PS
Pros & Cons of s.86
PROS
- tax deferral
- no election req’d
CONS
- Amend articles of incorporation
- Cost to value shares
- Must exchange all taxpayer’s shares in a particular class
What are the two types of estate freezes for s.85? Which one is similar to s.86?
- Internal (similar to s.86, except you use elected amount)
- External
What is unique about a s.85 external freeze?
Creates a holding company
Pros and cons of s.85 external freeze
PROS
- tax deferral
- ability to create capital gains
- reorg of share capital not req’d
CONS
- costly to value shares
- joint election req’d
- more complex
What is unique about a s.51 estate freeze?
Cannot receive non-share consideration
Pros and cons of s.51
PROS
- tax deferral
- no election req’d
- very straightforward
CONS
- no boot allowed
- costly to value shares
- no room to create cap gains
What is a s. 85.1 exchange?
Public corp taking over another corporation
