S. 69(11)(b) does not undercut the s. 85.1(3) rollover

Where Canco drops FA1 into FA2, prior to a sale of FA1 by FA2 to an arm’s length non-resident purchaser, s. 69(11)(b) will not apply to deny s. 85.1(3) rollover treatment on the drop-down transaction: FA2 is not "exempted" from tax under the Act on its sale of FA1, but simply is not subject to tax under the Act in the first place.

Neal Armstrong.  Summary of 21 October 2013 Memorandum 2013-0505831I7 under s. 69(11).