CRA notes that “technically” s. 74.4(2) may be avoided through a stock dividend

CRA noted that s. 74.4(2) would likely apply to transactions in which a small business corporation (Opco) declares a stock dividend, consisting of high-low preferred shares, on its common shares held by an individual (Mr. X), with Mr. X rolling those prefs into a non-SBC (Holdco) held solely by his wife in exchange for Holdco prefs, and Opco then redeeming the prefs held by Holdco.

CRA then acknowledged (following 2014-0538041C6 F), that “technically” s. 74.4(2) would not apply if Opco instead was not a SBC and, following the high-low stock dividend by Opco to Mr. X, what instead happened was that his wife simply subscribed for common shares of Opco – and noted that CRA generally does not comment on GAAR in the context of a technical interpretation.

Neal Armstrong. Summary of 8 December 2015 T.I. 2015-0613401E5 F under s. 74.4(2).