Robillard (Estate) c. The Queen: The Uncertainty Surrounding Pipeline

  • April 21, 2022
  • Julia (Zhuying) Zhuo

Summary of Robillard

In Robillard (Estate) c. The Queen (“Robillard”),[1] the Estate of Mr. Robillard (the “Estate”) implemented a “post-mortem pipeline” strategy. The Minister sought to apply subsection 84(2) of the Income Tax Act[2]. With reluctance, the Tax Court in Robillard followed the Federal Court of Appeal (the “FCA”) decision in Canada v. MacDonald (“MacDonald”) [3] and found that subsection 84(2) applied. However, it strongly criticized the FCA’s broad interpretation of subsection 84(2) and indicated that it may be time for the FCA to reconsider its MacDonald decision.   

The “Post-Mortem Pipeline” Strategy

In Robillard, the pipeline strategy was implemented to distribute assets of a private company, Gesco, which held investments for its sole shareholder, Mr. Robillard. Upon his death, Mr. Robillard was deemed to dispose of the Gesco shares at their fair market value (“FMV”). The deemed disposition resulted in a capital gain of $1.9 million on Mr. Robillard’s final return. His Estate was deemed to have acquired the Gesco shares at their FMV. By implementing the pipeline strategy, the Estate intended to use the high ACB of its Gesco shares and mitigate potential double taxation arising from the deemed disposition.  

In Robillard, the “post-mortem pipeline” strategy involved the following steps.

  1. On November 7, 2012, a Holdco was incorporated to act as an intermediary purchaser.
  2. On January 17, 2013, the Estate transferred the Gesco shares to the Holdco in exchange for a promissory note equal to the FMV of the shares (the “Note”). It reported no gain since the shares have a high ACB. Additionally, because the high ACB resulted from a capital gain that was not sheltered by a capital gains exemption or V-Day increment, it was “hard” for the purpose of section 84.1, which will not apply to deem the amount of promissory note to be a dividend.[4]
  3. On the next day, Gesco was liquidated into the Holdco under s.88.
  4. On February 8, 2013, upon repayment of the Note held by the Estate, the Holdco essentially distributed the Gesco assets to its former shareholder, the Estate.[5]